China first-quarter economic growth slowest since 2009

Clifford Coonan in Beijing

China’s economy expanded by the slowest rate in seven years in the first quarter of this year, but upbeat readings from the shopping malls and factory gates, as well as strong investment growth, suggested the world’s second largest economy might be stabilising.

Data from China’s National Bureau of Statistics showed that gross domestic product grew 6.7 per cent year-on-year in the three months to the end of March, to reach 15.9 trillion yuan (€2.18 trillion).

The growth rate is down on the 6.8 per cent notched up in the previous quarter, which was already the lowest quarterly rate since the global financial crisis, but it was slightly ahead of most economists’ forecasts, and in line with market expectations, although there are anxieties the recovery may be fuelled by unsustainable levels of debt.

NBS spokesperson Sheng Laiyun called the first-quarter performance "a good start" to the year.

Earlier this week, premier Li Keqiang, the Chinese leader charged with managing the economy, had flagged the first-quarter data might be upbeat when he said there were positive signs but downward pressures still persisted.

Speaking to provincial and municipal officials, Mr Li said Beijing would push forward "supply-side reforms" while keeping economic growth within a reasonable range.

“There are more positive factors in economic operations, but the downward pressure remains relatively big,” Mr Li said. “We cannot ignore risks in some sectors.”

Flagging property market

Chinese economic growth in 2015 was 6.9 per cent, its slowest rate in a quarter century, as a flagging property market, an industrial glut and a downturn in exports weighed on the economy.

The government has forecast a growth range for the full year of between 6.5 and 7 per cent, and Friday’s figures are seen, tentatively, as a bottoming-out of the slowdown.

"There is sufficient evidence the Chinese economy had an auspicious start in Q1," Zhao Chenxin, spokesperson with China's top economic planner, the National Development and Reform Commission, told the China Daily.

Mr Zhao cited positive changes in investment growth, steady prices, rising business profits, a warming property market and higher fiscal revenue.

Earlier this week, the International Monetary Fund said in its World Economic Outlook it expected the Chinese economy to expand 6.5 per cent in 2016 and 6.2 per cent in 2017, both predictions up 0.2 percentage points from the international lender's predictions in January.

Fixed-asset investment

Fixed-asset investment rose 10.7 per cent year on year in the first quarter, a faster expansion than last year’s 10 per cent, while property investment was up 6.2 per cent, a significant acceleration from 1 per cent in the whole of 2015.

Industrial output expanded 5.8 per cent, having risen 5.4 per cent in the January-February period, while the service sector grew 7.6 per cent.

The lending picture was lively. Net new loans from Chinese banks were 1,370 billion yuan (€187.54 billion) in March net new yuan loans in March, ahead of expectations and nearly double that in February.

The environmental group Greenpeace said the data showed coal use and CO2 emissions continued to fall in the quarter. While electricity consumption grew 3 per cent year on year, growth in non-fossil energy pushed fossil power generation down by over 2 per cent. Coal output fell by five per cent, as coal-fired power generation and steel output was scaled back.

"Today's data shows that China's economy is breaking free from coal," said Greenpeace's senior campaigner on coal, Lauri Myllyvirta. "Clean energy is booming and the economic structure is shifting rapidly away from smokestack industries. This is major news for China and the whole world."

The Chinese government has cut interest rates, reduced taxes, tried to reduce overcapacity and introduced limited reforms to deal with the slowdown, but there are lingering fears expansion is being fuelled by debt.

"Today's released data ought not to distract from the fact that the structural issues facing China's economy remain unresolved," Economist Intelligence Unit economist Tom Rafferty said in a research note.

“It has taken considerable monetary and fiscal policy loosening to stabilise economic growth at this level and this effort has distracted from the reform agenda that is fundamental to long-term economic sustainability.”