A man walks past the window to a real estate office advertising property for sale
China has ended the year with its old growth engines roaring and new drivers like consumption in robust health, defying the prophets of doom yet again. Now, it confronts 2017 with fresh questions over the debt and stimulus used to underpin that stabilization.
Industrial output and fixed-asset investment maintained brisk expansions in November and retail sales accelerated, data released this week showed. That’s resulted in an overall expansion of about 7 percent, according to a monthly tracker from Bloomberg Intelligence.
Aside from managing its ballooning debt load, China also faces a 2017 fraught with challenges – from potential confrontations with U.S. President-elect Donald Trump over trade and Taiwan to the possibility that rising U.S. interest rates accelerate capital outflows. As the government prepares for an annual economic work conference as early as this week, the economy – for now at least – is in a sweet spot that’s given policy makers space to selectively tighten liquidity and begin to clamp down on surging property prices.
“Compared to January, when people thought China was having a hard landing and capital outflows were huge, this year is way better than expected,” said Larry Hu, head of China economics at Macquarie Securities Ltd. in Hong Kong. “On the other hand, growth is still driven by the old economy, property. These numbers aren’t going to last forever.”
The data showed an acceleration of retail sales, with help from car sales as buyers rushed to capitalize before tax incentives on purchases expire. Online sales also quickened last month, boosted by shopping bonanza Singles Day on Nov. 11.
But state-owned firms and infrastructure investment continued to do most of the heavy lifting. State-owned investment was up 20.2 percent in the first 11 months from a year earlier and November fiscal spending rose 12.2 percent from a year earlier.
Meantime, exports have been cushioned by a weaker yuan and factory prices have snapped out of their deflationary funk, leaving the economy’s expansion on pace to land smack in the middle of the government’s 6.5 percent to 7 percent full-year objective.
With a crucial Communist Party Congress scheduled for late next year, policy makers are committed to providing enough stimulus to underpin a target for average annual growth of at least 6.5 percent to 2020. The downside of that is an ever increasing debt burden, with its risks deferred to the future.
“Policy support was financed by more debt, which worries investors,” said Wang Tao, head of China economic research at UBS Group AG in Hong Kong. The “property rally also made domestic residents concerned about a property bubble.”
Stimulus also may be needed next year to offset the likely drag on growth from curbs on home sales. Tom Orlik, chief Asia economist for Bloomberg Intelligence in Beijing, estimates real estate investment will slow to 1 percent in 2017 from 8 percent this year, resulting in a 1 percentage point drag on growth. Expiring car tax breaks will weigh on retail sales, too.
A front page article in the Communist Party’s flagship newspaper People’s Daily yesterday used the phrase new “fangwei” – which translates as new orientation – to reference measures to force some zombie companies to close and warned about a period of torture if a “reform window” is missed. Still, economists expect the imperative for rapid growth to prevail again next year. Bloomberg
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