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China GDP slows

January 20, 2017

In 2016, China recorded its slowest rate of growth in more than a quarter of a century, as the world's second largest economy struggles to restructure amid explosive growth in debt and fears of protectionism.

Symbolbild Wirtschaftswachstum in China
Image: picture-alliance/dpa

China's gross domestic product (GDP) expanded by 6.7 percent last year, significantly slower than in the previous year, when growth had come in at a rate of 6.9 percent.

The National Bureau of Statistics (NBS), which released the data on Friday, said in a statement that China's economy was, however, within "a proper range with improved quality and efficiency."

The country's lowest growth rate in 26 years was the result of domestic and external conditions that were "still complicated and severe," NBS added in the statement. Nevertheless, the 2016 GDP falls within the government's target range of 6.5 percent to 7.0 percent.

The Asian economic powerhouse has long been a key engine of growth in the global economy. But the country's Communist leaders are trying to reduce China's strong reliance on exports and infrastructure investment for growth in favor of higher consumer spending.

But the transition is proving difficult, with the crucial manufacturing sector struggling in the face of sluggish global demand for Chinese products and excess industrial capacity left over from the boom of the past two decades.

Year-end uptick

A bright spot in the figures released on Friday was provided by a higher-than-expected growth rate for the final quarter of 2016. Boosted by strong government spending and record bank lending, the Chinese economy accelerated at a pace of 6.8 percent, compared with the same three-month period a year ago.

In December alone, industrial production rose 6.0 percent year on year, while retail sales increased 10.9 percent. Property investment grew a surprisingly strong 11.1 percent in the month, from 5.7 percent in November, even as house prices showed signs of cooling in some major cities. But some economists do not expect the fourth-quarter rebound to extend far into 2017.

"A slowdown in the property market and steps to address supply shortages in the commodity sector ought to drag again on demand and output," Tom Rafferty, regional China manager for the Economist Intelligence Unit, told the news agency Reuters.

Uncertainty and risks remain

Economists assume that the government's structural reforms, including efforts to cool China's overheated housing market, coupled with a potentially testy relationship with the new US administration will weigh on China's growth this year.

Analysts of Swiss bank UBS also pointed to China's mounting debt as a major financial risk to growth, noting that the country's debt-to-GDP ration had risen 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.

Therefore, economists expect China's leaders to lower their economic growth target to around 6.5 percent this year, giving them more room to push reforms and contain debt risks.

"The key risk to the Chinese economy in 2017 and 2018 is the possibility that faster than expected US interest rate increases could intensify Chinese capital outflows and increase stresses on China's financial system," said Bill Adams, senior economist at US-based PNC Financial Services Group.

Others see Beijing's relations with the Trump administration as the biggest unknown. Tim Condon, Singapore-based economist at ING, told Reuters that Trump advisers and cabinet-nominees had identified bilateral relations as in need of adjustment to support Trump's objective of a manufacturing renaissance in the United States.

US companies feel 'less welcome' in China

uhe/jd (Reuters, AFP, dpa)


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