China third-quarter economic growth seen steadying but property, debt key risks

Tue Oct 18, 2016 7:03pm EDT
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By Kevin Yao

BEIJING (Reuters) - Fueled by government spending and a housing frenzy, China's economic growth likely steadied at 6.7 percent in the third quarter, but slumping private investment, surging debt and the risk of a property correction are keeping the government and global investors on edge.

Wednesday's data is expected to paint a picture of an economy that is slowly stabilizing but increasingly dependent on government spending and a housing boom for growth, as exports remain stubbornly weak.

Chinese leaders are trying to spur growth to create jobs, but are also facing pressure to push painful structural reforms such as cutting industrial overcapacity, raising the specter of more layoffs and debt defaults.

Government pledges to reduce debt are also fraught with risk, as less leverage almost always means slower economic activity in the short run, a prospect Beijing will be loath to accept as it spends ever more to hit official growth targets.

Economists believe that the greatest near-term risk is a possible correction in the high-flying property market, which accounts for about 15 percent of gross domestic product (GDP). A wave of restrictions imposed on buyers in major cities in recent weeks has resulted in a sharp drop in sales.

"Downward pressure on growth could mount after recently announced property tightening measures. Short-term growth would also likely come under pressure as a reduction in credit growth spurs a fall in spending," analysts at Singapore's DBS Group said in a note.

"Of course, such a deleveraging push could put China's economy on a more sustainable long-term path by reducing the risk of a bad-debt crisis."

Premier Li Keqiang said last week that the economy performed better than expected in the third quarter due to a rebound in factory output, company profits and investment, while adding that debt risks are under control.   Continued...

A woman walks past a property poster outside luxury apartment blocks in central Beijing, China, March 15, 2016. REUTERS/Jason Lee