China data point to steadier economy for the moment

China’s economy largely showed further signs of steadying in October as expected, but disappointing retail sales growth and fears of US trade frictions under incoming President Donald Trump are increasingly clouding the outlook.

Fixed-asset investment quickened slightly and beat expectations in January-October as the government stepped up infrastructure spending to support growth, official data showed on Monday. But a number of other indicators released over the past week from exports to bank lending, as well as expectations of a slowdown in the heated property market, suggest economic momentum may falter in the months ahead.

“On balance, today’s data suggest that the recent recovery in economic activity continued into the fourth quarter,” Capital Economics said in a note.

“We expect growth to hold up well for another quarter or two. However, with credit growth now slowing and the property market beginning to cool the drivers of the recent recovery look set to fizzle out early next year.” China’s leaders have depended on a surging real estate market and government infrastructure spending to drive activity this year and look set to meet their growth target of 6.5 to 7 per cent. The construction boom in turn has helped perk up the ailing industrial sector, spurring demand for cement to steel.

But top policymakers and investors are also clearly growing more concerned about the risks of prolonged debt-fuelled stimulus. China’s overall debt has jumped to more than 250 per cent of GDP from 150 per cent at the end of 2006, the kind of surge that in other countries has resulted in a financial bust or sharp economic slowdown, analysts say.

“I believe the overall policy tone has turned to risk management as the authorities are concerned about asset bubbles,” said Singapore-based economist Zhou Hao at Commerzbank, predicting that the government will throttle back its aggressive stimulus before the end of the year.

Fixed-asset investment expanded 8.3 per cent in the first 10 months from a year earlier, slightly ahead of market expectations and supported largely by government spending. Investment by state firms surged 20.5 per cent, though the pace cooled slightly from the first nine months.

In an encouraging sign, growth of private investment picked up to 2.9 per cent from 2.5 per cent in January-September.

In numbers

China’s overall debt has jumped to more than 250 per cent of GDP from 150 per cent at the end of 2006

Fixed-asset investment expanded 8.3 per cent in the first 10 months from a year earlier

Investment by state firms surged 20.5 per cent

Growth of private investment picked up to 2.9 per cent from 2.5 per cent in Jan-Sep