China’s economy expanded 6.7 per cent in the third quarter, as widely expected, with state investment, strong growth in services and an ongoing property boom outweighing the continued weakness of the export sector.
The year-on-year data shows that the world’s second biggest economy is on track to meet a government target of 6.5 to 7 per cent growth for the year. The Chinese economy grew 6.9 per cent in 2015, the slowest pace in a quarter of a century.
With exports still stubbornly soft, economic expansion was largely due to increased domestic demand, especially in the property and carmaking sectors.
New figures show consumption accounted for a staggering 71 per cent of gross domestic product (GDP) growth in the first three quarters of the year, compared to the 66.4 per cent for 2015.
Chinese state media characterised the GDP data as a sign that the economy “stabilised with a solid performance”.
"The general performance was better than expected, and the national economy grew steadily with progress being made and quality improved," Sheng Laiyuan, spokesperson with the National Bureau of Statistics, told the Xinhua news agency. "Efforts to implement structural reforms have taken effect . . . some promising signs have appeared in the industrial sector."
GDP expanded 6.7 per cent year-on-year in the first three quarters of 2016 to reach 53 trillion yuan (€7.14 trillion).
Period of transformation
The statistics bureau said that the economy was in a critical period of transformation and upgrading, with old drivers of growth being replaced by new ones. In addition they said there are many uncertain factors remaining in the economy and that the foundations for sustained growth were not solid.
With private investment mired in the doldrums, debt rising and fears of a property bubble bursting, the economy is increasingly reliant on government spending and the outlook remains uncertain.
In an effort to deleverage the economy, the government rolled out a debt-for-equity swap programme earlier this month to bring down the corporate leverage ratio, while over a dozen Chinese cities have introduced measures to cool overheated markets.
"It's amazing what a housing bubble and crazy debt increases can achieve," Michael Every, head of financial markets research at Rabobank in Hong Kong, told Bloomberg. "This is not sustainable – but then the alternative is nothing anyone wants to think about."
Industrial output
Industrial output rose 6.1 per cent from a year earlier, compared to a forecast for 6.4 per cent, while retail sales gained 10.7 per cent, in line with expectations.
Real estate investment growth rose 5.8 per cent in January to September, a slight increase from 5.4 per cent in the first eight months, but house prices have risen sharply, with the value of new home sales up 61 per cent in September from a year earlier, despite policymakers’ efforts to cool the hot market.
"Looking ahead, we think that the cooling measures in property market will weigh on China's economy over the coming quarters," Commerzbank economist Zhou Hao said in a research note.
However, Mr Zhou said this round of property tightening was unlikely to drag down the headline growth as sharply as from 2010 onwards, as housing investment has remained lukewarm in the past few quarters despite soaring property prices.
(Additional reporting Bloomberg)
