China’s economic growth held steady in the latest quarter, shored up by a bank lending boom and consumer spending that helped make up for weaker trade.
The world’s second-largest economy grew by 6.7 percent in the three months ending in September compared with a year earlier, data showed Wednesday. That was in line with the two previous quarters and better than some forecasters expected.
”Economic activity seems to be holding up reasonably well, with few signs that a renewed slowdown is just around the corner,” said Julian Evans-Pritchard of Capital Economics in a report.
Still, analysts cautioned growth is likely to slow next year because the latest strength is based in part on a surge in bank lending and real estate prices. Regulators see both as a risk and are trying to rein them in.
China’s economy has cooled steadily over the past six years as communist leaders try to steer it to more self-sustaining growth based on consumer spending instead of trade and investment.
Beijing has used higher government spending and infusions of credit to avert a sharper downturn and politically dangerous job losses. That has temporarily hobbled the ruling Communist Party’s long-term plan to make the state-dominated economy more productive and efficient by giving market forces a bigger role.
Retail sales grew 10.4 percent in the first three quarters, boosted by 26.1 percent growth in e-commerce. No data for the latest quarter alone were released.
Growth in service industries, boosted by a surge in real estate sales, accelerated to 7.5 percent from the previous quarter’s 7.8 percent. By contrast, exports shrank by 5.6 percent in September from a year earlier.
The data indicate ”China’s transition from a high-speed, heavy industry-based economy to a moderately-fast consumer and services-based economy is well underway,” said Andy Rothman of Matthews Asia in a report.
”The challenges of completing this transition will result in gradually slower growth rates and increased volatility, but the risks of a hard landing are very low.”
State media have warned China’s economic outlook will be ”L-shaped,” meaning the downturn should bottom out but growth will not rebound to the double-digit rates of the past decade.
Growth in investment, still a key economic driver, accelerated in September to 9 percent over a year earlier, up from August’s 8 percent. But much of it came from state companies, reflecting the skittishness of private investors.
Spending by state companies on real estate and other fixed assets rose 21.1 percent in the first nine months of the year while spending by private enterprises rose just 2.5 percent.
”State-directed investment is keeping headline growth on target,” said Bill Adams of PNC Financial Services Group in a report.
Beijing’s reliance on credit to drive growth since the 2008 global crisis has led to a rapid runup in China’s debt to the equivalent of 250 percent of gross domestic product, high for a developing economy. That has prompted warnings of a possible financial crisis or a drag on growth if debt isn’t controlled.
Regulators announced plans last week to allow ”high-quality enterprises” with ”temporary difficulties” to pay down debt by giving their bankers equity in their enterprises.
The central bank’s measure of total credit showed growth in September edged up to 11.3 percent compared with a year earlier, up from August’s 11.2 percent rate.
”The recent recovery is ultimately on borrowed time given that it has been driven in large part by faster credit growth and a property market boom,” said Evans-Pritchard. ”As the boost from policy stimulus begins to wear off, probably at some point early next year, continued structural drags mean the economy is set to begin slowing again.”