China's economy grew 6.9 per cent in 2017, eclipsing official targets but doubts remain

China's economy grew 6.9 per cent in 2017, eclipsing official targets but doubts remain

China's economy grew 6.9 per cent in 2017, eclipsing official targets but doubts remain

Updated 18 January 2018, 22:30 AEDT

Despite a raft of policies aimed at slowing the economy, cutting debt and easing pollution, China's GDP last year easily beating the official growth target for the year.

It is barely two weeks since the books for 2017 were ruled off, but for China's hard working statisticians that is enough time to calculate that the world's second biggest economy grew at a better than expected 6.9 per cent last year.

Key points:

  • China's economic growth in 2017 was well ahead of the official target of 6.5pc
  • It is an acceleration on last year's result, the first annual pick up since 2010
  • China faces a challenging 2018 with policies in place to cut debt and credit likely to have an impact

That eclipses the 6.7 per cent recorded in 2016 and above the 6.5 per cent target decreed by Communist Party leaders.

The figures released by the National Bureau of Statistics, while robust, point to a marginal slowing of the economy later in the year.

Fourth-quarter GDP grew at annualised pace of 6.8 per cent, which was in line with the third-quarter outcome.

Questionable data

However, as usual there was scepticism about the veracity of the data.

Those doubts are not only harboured by external analysts, but the NBS itself which has taken to compiling national GDP separately from data submitted by the provinces after a couple of local administrations admitted to doctoring their results.

Capital Economics China economist Julian Evans-Pritchard is one who suggests the quarterly figures remain a poor guide to growth.

"Economic growth in China probably slowed last quarter, even though the official figures paint a picture of continued stability," Mr Evans-Pritchard said.

On Capital Economic's own measure, China's economy expanded at closer to 6 per cent last year, a rebound from the 5 per cent it tallied up in 2016.

However NAB's Gerard Burg said the top-line GDP figure may in fact have understated growth.

"It is possible that the official figure underestimates the strength of growth in 2017 — given that several local governments have confirmed that 2016 economic data was overstated," he noted.

Mixed signals

The key monthly data from December, released at the same time as the quarterly GDP figure, paints a mixed picture.

Retail sales growth slowed, but industrial production edged up a notch and fixed asset investment — a proxy for infrastructure and construction spending — rose 7.2 per cent for the year, implying a significant acceleration in December.

Breaking down the figures, real estate investment dipped and house sales remained weak in December, however residential construction stats remained stable.

Mr Burg said he expected softer house prices and sales, along with weaker investment, will flow through into weaker construction activity in 2018 and be a drag on economic growth.

The stronger-than-expected result was tabled despite a number of policies aimed at putting a brake on risky investments, spiralling debt and choking pollution — all by-products of previous growth-all-costs policies.

Growth to slow in 2018

ANZ's Raymond Yeung said aiming for high GDP growth placed huge demands on Chinese resources and is no longer sustainable.

"President Xi Jinping understands that China can no longer play its high-growth card," Mr Yeung said.

"Issues like debt pile-up and air pollution could cause social unrest, if not a financial meltdown.

"That's why he made the policy shift to focus on quality instead of speed of growth."

Mr Evans-Pritchard suggests 2018 will see the Chinese economy kicking down another gear or two and expects actual, as opposed to reported, growth to come in closer to 4.5 per cent.

"Looking ahead, we think tight monetary conditions and slowing credit growth will continue to weigh on the pace of economic expansion in coming quarters," he said.