By Mark Magnier
BEIJING--China used a surge of easy credit and state spending to eke out a 6.7% rise in economic growth for 2016, the weakest rate in a generation.
The published rate was well within leaders' target range of between 6.5% and 7%, but economists say Beijing only got to the final number by relying heavily on short-term measures likely to delay much-needed overhauls 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 doubledown 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.
China's statistics chief, Ning Jizhe, echoed the president's remarks on Friday, saying growth last year was achieved with better quality and efficiency.
"Over the past year, the features of a new normal have become more prominent," Mr. Ning said. "This is what we've been talking about for a long time. Economic restructuring is happening."
However, official data suggest economic growth has relied heavily on activities related to the property market, such as construction or manufacturing of steel and glass. Meanwhile, contributions to GDP growth from consumption dropped by 1.8 percentage point last year, according to the data.
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 could reverse that if the economy weakens significantly before the once-in-five-years Communist Party leadership shuffle this autumn.
"Stability is the key word this year," said J.P. Morgan Chase & Co. economist Haibin Zhu. "Not only economic stability, but financial stability and social stability."
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."
The prospect of additional stimulus and a relatively steady economy this year are fueling hope in some old-line industries. Liaoyang Faith Cement Co. in the northeastern city of Liaoyang said orders picked up toward the end of what was otherwise the worst year in the company's 13-year history, with sales down 50% from 2015. "The overall economic situation is not good," said Li Jun, the company's marketing manager. "But this year's prospects seem better."
Economists said industrial production and fixed-asset investment grew at a slower but still solid pace in December as momentum slipped following the front loading 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 ahead of the Lunar New Year holiday, which falls in late January this year, economists said.
Liyan Qi, Pei Li and Kersten Zhang contributed to this article.
Write to Mark Magnier at email@example.com
(END) Dow Jones Newswires
January 20, 2017 00:36 ET (05:36 GMT)
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