China’s economy holds momentum as output, investment accelerate

Bloomberg

China’s economy started the year on a firm footing as its old growth engines gathered pace, with home sales remaining resilient and steel and aluminum rebounding as prices rallied.
Industrial production climbed 6.3 percent from year earlier in January and February combined, versus median estimate of 6.2 percent in Bloomberg economist survey. Retail sales advanced 9.5 percent in the first two months, missing economists forecasts as auto sales dropped after a tax increase on small-engine cars. Fixed-asset investment increased 8.9 percent during the same period.
The reports show investment, property and industrial drivers helping to boost growth across the economy as top leaders conclude their legislative gathering and look ahead toward a twice-a-decade leadership shift in the fourth quarter. Stea-
dier expansion, which lifted the Bloomberg Intelligence China monthly growth tracker to 6.99 percent in February, gives the People’s Bank of China more maneuvering room as it boosts money-market rates to contain corporate leverage.
Premier Li Keqiang announced at the opening of the National People’s Congress this month a 2017 expansion target of “around 6.5 percent, or higher if possible” and cut the M2 money supply goal to 12 percent from 13 percent in 2016. He will elaborate on the government’s objectives Wednesday at a press conference as the annual legislative gathering closes.
“Private investment showed strong signs of recovery,” said Liu Ke, chief strategist at Beijing StarRock Investment Management Co. “This will give a further boost to the entire economy in the future, as the private sector creates most of the employment. As a result, the rebound in private investment will help support future consumption.”
“Following the solid data for the start of the year and the signaling of a slightly more dovish policy stance during the recent NPC compared to what we had expected, we now expect GDP growth to slow to 6.5 percent this year, up from 6.3 percent before,” Louis Kuijs, head of Asia economics at Oxford Economics in Hong Kong, wrote in a report. “High uncertainty calls for vigilance of policy making. But at least the current growth momentum gives policy some two-way leeway.”
“China’s economy remained strong at the start of 2017,” Julian Evans-Pritchard, a China economist at Capital Economics in Singapore, wrote in a note. “But this strength remains heavily reliant on rapid investment growth that will be difficult to sustain given clear signals that the fiscal and monetary policy stance will be less supportive this year. As such, we continue to anticipate a slowdown in economic activity in the coming quarters.”