China GDP beats expectations but debt risks loom

Fri Jan 20, 2017 3:50am EST
 
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By Kevin Yao and Elias Glenn

BEIJING (Reuters) - China's economy grew a faster-than-expected 6.8 percent in the fourth quarter, boosted by higher government spending and record bank lending, giving it a tailwind heading into what is expected to be a turbulent year.

But Beijing's decision to prioritize its official growth target could exact a high price, as policymakers grapple with financial risks created by an explosive growth in debt.

China's debt to GDP ratio rose to 277 percent at the end of 2016 from 254 percent the previous year, with an increasing share of new credit being used to pay debt servicing costs, UBS analysts said in a note.

The fourth quarter was the first time in two years that the world's second-largest economy has shown an uptick in economic growth, but this year it faces further pressure to cool its housing market, the impact of government efforts at structural reforms, and a potentially testy relationship with a new U.S. administration.

    "We do not expect this (Q4 GDP) rebound to extend far into 2017, when a slowdown in the property market and steps to address supply shortages in the commodity sector ought to drag again on demand and output," said Tom Rafferty, regional China manager for the Economist Intelligence Unit.

The economy expanded 6.7 percent in 2016, the National Bureau of Statistics said on Friday, near the middle of the government's 6.5-7 percent growth target but still the slowest pace in 26 years.

Economists polled by Reuters had expected 6.7 percent growth for both the fourth quarter and the full year.

Housing helped prop up growth again in the fourth quarter, with property investment rising a surprisingly strong 11.1 percent in December from 5.7 percent in November, even as house prices showed signs of cooling in some major cities.   Continued...

 
Pedestrians walk outside an office building in Beijing's central business area, China, January 20, 2017. REUTERS/Jason Lee