China's first-quarter growth slows to 6.7%

China's growth rate slowed as expected in the first three months of the year, but a notable pickup in debt-driven industrial activity last month probably cushioned the slowdown.

Growth slowed to 6.7 per cent in the first quarter compared with a year earlier, according to official data released on Friday morning in Beijing. That was the slowest quarterly rate since the depths of the financial crisis in 2009, but it was also exactly what economists had forecast and it was in line with the government's target this year for growth of 6.5 to 7 per cent.

China is increasingly a two-speed economy. Traditional industries that had relied on a boom in housing construction, like steel, mining and manufacturing, are mired in a brutal downturn.

That grim reality is countered by resilient growth in consumer demand, as China's dynamic service sector continues to account for a larger share of overall economic output and job creation. This is best reflected in the rise of e-commerce and innovative high-tech companies.

China's industrial juggernaut, which has traditionally relied heavily on cheap and plentiful loans from the state-controlled financial system, also appears to have rebounded in recent months. New government stimulus measures, like recent interest rate cuts and increased fiscal spending, are taking hold.

Industrial production in March climbed 6.8 per cent from a year earlier, separate data released on Friday showed, significantly better than the 5.9 per cent increase that economists were expecting. The rise appears to have been helped by a notable increase in new loans, which in March totalled 1.37 trillion renminbi, or about $210 billion, higher than forecasts of 1.1 trillion renminbi.

"Data from the investment-industry nexus show that the tried and tested stimulus measures of recent months have stirred up the physical part of the economy," Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, wrote on Friday morning in a research note.

Economists for years have regarded China's topline data on gross domestic product with suspicion. Although it accurately captures the trend of slowing growth, the official figures are uncannily stable when compared with those of most other countries. The gross domestic product (GDP) data is also increasingly out of step with other indicators that suggest an even sharper growth slowdown, economists say.

Mark Williams, the chief Asia economist at Capital Economics, says this divergence has risen since 2012; he estimates China's actual growth rate today is closer to 4.5 per cent.

"Evidence that the official figures overstate growth just add to the general impression that something is badly wrong with China's economy," Williams said. He pointed out that 4.5 per cent growth would still be a fairly impressive rate compared with most other large economies, but this gets overshadowed by questions over data accuracy.

"Most observers will remain sceptical about the official data, and I suspect this has a broader impact in undermining the credibility of policy," Williams added.

© 2016 The New York Times News Service