By Mark Magnier
BEIJING--With a strong push to accelerate growth with easy credit and state spending, China managed to eke out a 6.7% rise in economic growth for 2016.
The rate was well within leaders' target range for growth of between 6.5% and 7%. Nevertheless, it was the third year in a row Beijing posted the lowest annual growth in a quarter-century, and economists say it only got there by relying heavily on short-term measures that are likely to delay much-needed reforms to bloated state-owned companies and the country's inefficient financial system.
The push accelerated in the year's second half. Growth in the final quarter of the year was 6.8%, China's National Bureau of Statistics said Friday, the fastest pace all year after three straight quarters of 6.7% growth.
Beijing is expected to double down on old growth drivers this year--including fiscal spending and the property market--to keep the economy stable in an important year of leadership change.
"The fourth quarter was still quite solid, but we see signs of downside risk," said Standard Chartered Bank economist Shuang Ding. "And reform this year will be incremental, not radical, because stability is the first priority."
President Xi Jinping flagged the 6.7% annual rate in his speech to the world elite in Davos, Switzerland, earlier this week. Despite signs of China's reliance on a well-worn economic playbook, Mr. Xi told the World Economic Forum that China has entered a "new normal" of steady but sustainable growth fueled by household consumption and services.
With China's stimulus policies keeping the slowdown in check, the International Monetary Fund this week raised its 2017 growth forecast by 0.3 percentage point to 6.5%. But it also warned that continued reliance on debt-fueled investment risks a sharper slowdown in coming years.
Beijing is also grappling with a more challenging external environment, including a new U.S. president who has voiced skepticism about globalization and free trade. China is the world's largest export economy, and Mr. Xi told the global forum that no one benefits from a trade war, an apparent reference to Donald Trump, who will be sworn in Friday.
China has started dialing back recently on its easy-money policies to stem speculative bubbles, but economists say Beijing is likely to reverse that if the economy weakens significantly before the once-in-five-years Communist Party leadership shuffle this autumn.
Total social finance--a broad measure of credit that includes bank loans and nonbank lending--expanded by more than 11% last year, well above nominal economic growth, fueling more debt and industrial overcapacity, economists say. This compares with a nearly 3% decline in credit in 2015.
"They'll have a reactive stance toward reform this year," said Commonwealth Bank of Australia economist Wei Li. "If growth is stable, they might tighten credit a bit, but progress is going to be really slow as they continue to consolidate state power."
Economists said industrial production and fixed-asset investment grew at a slower but still solid pace in December as momentum slipped following the frontloading of government spending early in the year. The government also forced some factories to close last month as air pollution worsened, reducing output. Retail sales picked up last month as consumers rushed to buy vehicles in advance of an expiring tax break and opened their wallets in advance of the Lunar New Year, which falls in late January this year, economists said.
Liyan Qi and Pei Li contributed to this article.
Write to Mark Magnier at email@example.com
(END) Dow Jones Newswires
January 19, 2017 21:38 ET (02:38 GMT)
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