BEIJING (Reuters) – China’s economy grew at its weakest pace since the global financial crisis in the first quarter of 2016, maintaining pressure on Beijing to ramp up support measures as fears of a sharper downturn roil world financial markets.
Gross domestic product (GDP) in the world’s second-largest economy grew 6.7 percent in January-March from a year earlier, the National Bureau of Statistics said on Friday. That was bang on line with the 6.7 percent increase predicted in a Reuters poll, and compared with 6.8 percent in the prior quarter.
Other indicators, such as March industrial output, retail sales and first quarter fixed asset investment all beat forecasts in further signs of stabilisation in China’s economy.
KEY POINTS
Q1 GDP +6.7 pct y/y (f’cast +6.7 pct, prev +6.8 pct)
March industrial output +6.8 pct (f’cast +5.9 pct, Jan-Feb +5.4)
March retail sales +10.5 pct (f’cast +10.4 pct, Jan-Feb +10.2)
Q1 fixed asset investment +10.7 pct (f’cast +10.3 pct, Jan-Feb +10.2 pct)
Q1 property investment +6.2 pct (Jan-Feb +3.0 pct)
March new loans 1.37 trln yuan, vs f’cast 1.05 trln yuan
COMMENTARY:
ZHOU HAO, ECONOMIST WITH COMMERZBANK, SINGAPORE:
“Generally speaking, China’s Q1 GDP figures look fine. We believe the following three factors should have helped stabilize the economy somewhat: First, the property sales were pretty strong in the past few quarters, due to supportive property and mortgage policies. The housing sales soared by 54.1% in Q1, up from 14.4% for the whole year of 2015.
“Second, both monetary and fiscal policies became more proactive in Q1, with new loans reaching a record high at CNY4.6trn in Q1. Third, there emerged some sort of inventory replenishment from Chinese corporates in the past quarter, which is also reflected in rising commodity prices. For instance, the port iron ore inventories have been picking up gradually since last Q4.”
SUAN TECK KIN, ECONOMIST, UNITED OVERSEAS BANK IN SINGAPORE:
“All this obsession with a Chinese hard-landing I think is a bit too much.
“Chinese economic data is showing signs of stabilisation, including recent PMI numbers, as well as the latest figures on industrial production and retail sales.
“I would think that this should provide a bit more comfort for the rest of Asia. If you look at the March exports number for China, it has recovered quite nicely.”
CRAIG JAMES, CHIEF ECONOMIST, COMMSEC, SYDNEY:
“A collective sigh of relieve, not just here in Australia but around the world. All the results are above market expectations, it shows the rebalancing of the economy is proceeding to plan. If anything, the figures are surprisingly high, so one wonders about the sustainability of the growth rate for future months. Hopefully we’ll see other economies around the world focus on lifting their own growth rates.”
RAYMOND YEUNG, CHIEF CHINA ECONOMIST, ANZ BANK, HONG KONG:
“I think the March monthly statistics are overall very encouraging, you saw a rebound in industrial production and fixed asset investment, and of course GDP hit market expectations of 6.7 percent. What this shows is a stabilization of the old economy.
“Overall, what the data shows is that the public sector has now begun to recover, how long that will last is another story.”
“I would still be a bit cautious about headline growth, because we still need to see the composition of growth – last year’s 6.9 percent figure was underpinned by a massive contribution from financial services, and the strong loan and credit growth recently and the recent resumption of IPO activity suggests this could still be a big contribution.”
SHEN JIANGUANG, ANALYST AT MIZUHO SECURITIES IN HONG KONG:
“The data’s very strong, and except the GDP they all beat expectations, including industrial production, investment and the retail sales.
“This is only the first month we see the result of aggressive monetary policy easing and fiscal easing. But actually the second quarter will be even better because the trend is very clear, now that infrastructure investment has materialized, and new project starts has come up, and the housing market has recovered.”
“For monetary easing you can see the new loans in March reached over 1.3 trillion, so in a way the first quarter total new loan reached 4.5 trillion, that’s a historical high. In a way that’s very aggressive policy easing, and it also shows up in infrastructure investment and tax cuts. I think second and third quarter growth will be even much better than the first quarter.
“Of course the issue is whether this growth will be sustained if the government withdraws stimulus. The stimulus is pretty aggressive, especially since M2 now has a reached high level, and exceeded the government target.”
SUAN TECK KIN, ECONOMIST, UNITED OVERSEAS BANK IN SINGAPORE:
“All this obsession with a Chinese hard-landing I think is a bit too much.
“Chinese economic data is showing signs of stabilisation, including recent PMI numbers, as well as the latest figures on industrial production and retail sales.
“I would think that this should provide a bit more comfort for the rest of Asia. If you look at the March exports number for China, it has recovered quite nicely.”
MARKET REACTION
The Australian dollar, a proxy for China plays, briefly rose, while Asian stock markets steadied.
BACKGROUND
– China’s government has set an economic target of between 6.5 to 7.0 percent for 2016.
– Chinese leaders are seeking to steer the economy away from reliance on manufacturing to one dependent on services and consumption, but growth is being weighed down by weak exports, factory overcapacity, a soft property market, high debt levels, a government anti-corruption campaign and slowing investment.
– Premier Li Keqiang said in April that China’s economic indicators showed signs of improvement in the first quarter but the basis of such improvement was not solid.
– More policy easing and stimulus measures are expected in coming months to shore up economic activity.
– China’s economy grew by 6.9 percent in 2015.
– The central bank has already cut interest rates six times since November 2014 and reduced the amount of cash that banks must hold as reserves to spur activity, though some analysts say such moves have not been as effective as in the past when the economy was more tightly controlled and debt levels were much lower.
– Turmoil in China’s foreign exchange and stock markets have added to concerns that policymakers in Beijing may not be able to engineer a soft landing for the economy, let alone prevent a hard landing that would jeopardise the global economy.
– Some China watchers suspect real growth is much weaker than official GDP data suggest.
(Reporting by Reuters SHANGHAI newsroom and Asia bureaus; Compiled by Beijing newsroom; Editing by Shri Navaratnam)
