What Does The Strong Q1 Growth Mean For China?

China announced a growth surprise last week. After this solid first quarter performance, the central government may be in the unique position to achieve its growth target - even while tightening. In the first quarter, China’s economy grew 6.9 percent; slightly faster than expected and led by strong expansion at factories.

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What the first quarter data reflects is solid growth in several fronts. Retail sales soared to 10.9 percent on year-to-year basis, which reflects steady progression in the ongoing rebalancing of the Chinese economy toward consumption. Clearly, it was driven by recent gains in wage and credit growth, despite declining subsidies on car demand.

At the same time, industrial production climbed to 7.6 percent on an annual basis, which was supported by government infrastructure investment, including state owned enterprises (SOE) and property markets. Overall growth increased to 6.9 percent, which was fueled by trade and financing.

Retail sales soared to 10.9 percent on year-to-year basis, which reflects steady progression in the ongoing rebalancing of the Chinese economy toward consumption.

Such data herald strong beginning of the year for China, but also a positive contribution to regional growth and, due to the mainland’s role as the second-largest economy in the world, to global growth prospects.

The question is, can this growth performance be sustained in the coming months?

Conditions for sustained growth

In the first quarter, growth was fueled by heavy use of steel in the construction sector, while investment in electronics factories rose as demand strengthened in foreign markets. The former suggests slow progress in efforts to reign in excess capacity in mining output, including steel. That is likely to be noted in friction about steel overcapacity in the forthcoming G20 Summit in Hamburg, Germany.

Domestically, efforts to resolve the steel crisis are likely to strengthen with political consolidation after the 19th National Congress of the Communist Party in the fall.

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Disclaimer: Dan Steinbock is the founder of Difference Group and has served as research director of international business at the India, China and America Institute (US) and a visiting fellow at ...

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Kushal Kumar 5 months ago Member's comment

While it may sound a good sign for Chinese economy to grow in 2017, still this Vedic astrology writer has to caution that country for coming times. June to September, more so 19 August to 4 September in year 2017 looks to be calling for caution in relation to more than one area. War or natural disasters or cyber and other failures of technical nature may impede the economy.

Anastasija Janevska 5 months ago Member's comment

Kushal Kumar, what does astrology have to do with investing?

Charles Howard 5 months ago Member's comment

Nothing.