China’s economy expanded at a steady 6.7 percent in the third quarter and looks set to hit Beijing’s full-year target, fueled by increased Chinese government spending, record bank lending and a red-hot property market, which are adding to its growing pile of debt.
Yesterday’s data painted a picture of an economy that is slowly stabilizing, but increasingly dependent on government spending and a housing boom for growth as private investment and exports remain stubbornly weak.
The economy grew at the same clip in the third quarter year-on-year as in the first and second quarters, as analysts polled by Reuters had expected.
Government infrastructure projects and the property boom have spurred prices and demand for raw materials and goods from cement and steel to furniture.
On a quarterly basis, it grew 1.8 percent, again in line with expectations, but easing slightly from the previous period.
Economists say the greatest near-term risk for China is a possible correction in the high-flying property market, which accounts for about 15 percent of GDP.
Real-estate investment accelerated last month and home sales soared, highlighting persistent investor demand even as more cities seek to curb prices.
Property investment growth ticked up to 7.8 percent last month year-on-year and property sales surged 34 percent, though new construction starts fell 19.4 percent, suggesting sentiment among builders might be shifting as the government looks to cool the buying frenzy.
The property craze has also heightened concerns about China’s growing debt and the risks to its financial system, as much of the record loan growth has been driven by mortgages.
China’s debt has soared to 250 percent of GDP and the Bank for International Settlements (BIS) last month said that a banking crisis was looming in the next three years.
“We think that the cooling measures in property market will weigh on China’s economy over the coming quarters,” Commerzbank AG economist Zhou Hao (周浩) in Hong Kong said in a note.
Chinese Bureau of Statistics spokesman Sheng Laiyun (盛來運) said “the impact [of property adjustment measures] on the economy will not be very big” in the short-term.
Consumption contributed 71 percent of GDP growth in the first three quarters of the year, compared with 66.4 percent for last year. The increase is partly due to contracting net exports, but also indicates some success in Beijing’s attempts to rebalance the economy from an over-reliance on investment-led growth.
Economic indicators for last month were mostly in line with expectations and improved slightly from August, but industrial output growth unexpectedly cooled to 6.1 percent from a year earlier, versus expectations for 6.4 percent.
Fixed-asset investment rose 8.2 percent in the January-to-September period from a year earlier, while fiscal spending in the nine-month period climbed 12.5 percent. For the first nine months, private investment rose just 2.5 percent.
China’s economy expanded 6.9 percent last year, the slowest pace in a quarter of a century.
While analysts expect China to meet its growth target this year, as usual, many remain skeptical of the official numbers, especially as growth has remained unchanged for three straight quarters even as the country attempts a major economic transition.
“The official GDP figures remain too stable to tell us much about the performance of China’s economy,” Julian Evans-Pritchard, China economist at Capital Economics in Singapore wrote in a note.