Boosted by higher government spending and record bank lending, China`s economy grew by a faster-than-expected 6.8% in the fourth quarter, giving it a solid tailwind heading into what is expected to be a turbulent 2017. 

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But Beijing`s decision to double down on spending to meet its official growth target may have come at a high price, as policymakers will have their hands full this year trying to defuse financial risks created by an explosive growth in debt.

The world`s second-largest economy also faces increased uncertainties from a cooling housing market and the government`s bid to push through painful structural reforms, which could help deal with the root-cause of rising debt and housing problems but weigh on near-term growth.

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

Economists polled by Reuters had expected China would report 6.7% growth for both the fourth quarter and the full year. The economy grew 6.7% in the third quarter.

While China is on more solid economic footing than this time last year, it faces increasing uncertainties in 2017, with a housing frenzy showing signs of cooling and the impact of previous stimulus measures expected to fade.

China`s sluggish exports also could come under fresh pressure if US President-elect Donald Trump follows through on pledges to impose tough protectionist measures.

"While Chinese growth looks stable into early 2017, a more marked slowdown by the second quarter appears inevitable," Gene Frieda, global emerging markets strategist at asset management giant PIMCO, said in a note this week.

"Growth has been stabilized only after massive fiscal and credit stimulus. China’s total government and private sector debt will likely surpass 285% of GDP this year, a 90% increase since 2008."

Gross domestic product (GDP) in October-December rose 1.7% quarter-on-quarter from the previous three months, compared with growth of 1.8% in July-September, the bureau said.

Analysts had expected quarterly growth would ease marginally to 1.7%. The head of economic planning said last week that conditions have been generally stable at the start of 2017, continuing the "steadying and good" momentum from the second half of 2016. 

Amid those reassuring signs of stabilisation, policy sources told Reuters that China`s leaders will lower their economic growth target to around 6.5% this year, giving them more room to push reforms to contain debt risks.

Other data on Friday showed the economic trend remained largely intact in the last month of the year, with December investment and factory output growth coming in slightly below expectations while retail sales rose more than expected.

The central bank could slightly tighten credit conditions this year to encourage debt-laden companies to deleverage, but it`s unlikely to rush to raise interest rates despite an expected pick-up in inflation, policy insiders said.

Among major risks this year, analysts point to a cooling property market, after many local governments imposed or tightened restrictions on home purchases to tame speculation which some fear is feeding a property bubble.

China`s average new home prices surged 12.4% in 2016, but gains have moderated in recent months. 

China`s corporate debt has climbed to 169% of GDP and international institutions have repeatedly urged Beijing to act quickly to tackle the problem in order to avoid a financial crisis.