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China’s GDP slows in Q1 but sign of recoveries emerging

By Feng Jianmin | April 15, 2016, Friday | Online Edition

CHINA’S economy rose 6.7 percent year-on-year in the first quarter, the slowest in seven years, but an array of economic data point to a recovery in March.

Gross domestic product was 15.85 trillion yuan (US$2.44 trillion) in the first quarter, with the service sector accounting for 56.9 percent, 2 percentage points higher than the same period of last year, data with the National Bureau of Statistic showed today.

The GDP growth was slower than the 6.8 percent growth in the fourth quarter last year but in line with market expectations.

The economy “had a good start for the year,” with its structure further optimized, and major economic indicators improved across consumer, manufacturing and investment sectors, spokesman of the NBS Sheng Laiyun told a press conference.

Sheng said the 6.7 percent growth remained at a relatively high level compared with developed and emerging markets, the employment was stable, consumer inflation was mild, and the increase of disposable income of residents was stable at 6.5 percent.

Other activity data also suggested a recovery of growth momentum in March.

Industrial production rose 6.8 percent year-on-year in March, strengthening from 5.4 percent in the January-February period.

Fixed-asset investment added 10.7 percent in the first quarter, 0.5 percentage faster than the first two months.

Investment into the real estate development accelerated to the fastest since the first quarter of last year to 6.2 percent in the first three months.

Retail sales growth rose to 10.5 percent in March from 10.2 percent in the first two months.

Also today, data from the People's Bank of China showed Chinese banks made 1.37 trillion yuan in new local-currency loans in March, beating analyst expectations and revealing continued accommodative stance of the monetary authorities.

Earlier data showed exports in March rose for the first time in nine months and China’s manufacturing sector in March expanded for the first time in eight months, with the Purchasing Managers’ Index up 1.2 points from February at 50.2.

“We can conclude the first-quarter economy as stable, structurally-improved, full of highlights, and better than expected,” Sheng told reporters. “The improved data in March can lead to a basic judgement that the economy has shown periodical signs of bottoming up.”

But he warned that downward pressure remains due to uncertain international conditions and difficulties under structural reforms.

"China's future growth is likely to follow an L-shaped trajectory in the long run, but in the near term, it may present a U- or W-shape due to fluctuations," Sheng told reporters.

Julia Wang, China economist of HSBC, said the economic recovery still need to be sustained by domestic demand, and monetary and fiscal support are needed to lift infrastructure investment and put the recovery on a surer footing.

“With economic activity data having taken a turn for the better, the key question now is whether the recovery can be sustained,” Wang wrote in a note. “Given the outlook on both the housing market and the export front remain uncertain, continued recovery in the coming months will depend more on whether policy makers deliver the fiscal easing.”

HSBC forecast full year GDP at 6.7 percent if the policy makers continue to deliver on both the easing and reform front.

Marie Diron, a Senior Vice President at Moody’s Sovereign Risk Group, warned that stimulus measures should be taken cautiously as not to increase longer term imbalances, particularly if they lead to a rapid increase in investment by state-owned enterprises that does not yield benefits in terms of profitability and value added.

Signs that policy stimulus props up growth include relatively rapid growth in fixed asset investment at 10.7 percent in nominal terms, nearly twice as fast as GDP as a whole, Diron added.

A prolonged industrial glut, sagging foreign trade and cooling property investment dragged down China's growth in 2015 to 6.9 percent, the slowest pace in 25 years.

Authorities have taken a string of measures to mitigate the downshift, cutting interest rates, reducing taxes, slashing overcapacity and initiating reforms to improve efficiency.

Earlier this week, the International Monetary Fund raised its forecast for China's growth in 2016 and 2017 to 6.5 percent and 6.2 percent respectively, both up 0.2 percentage points from its January predictions.

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