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China's economy gains steam; 1Q growth fastest since 2015

Posted April 17

— China's economic recovery is gaining traction, with growth rising to its fastest pace in over a year in January-March.

The 6.9 percent annual pace of expansion for the world's second-largest economy, reported Monday, surpassed economists' forecasts and was an improvement from 6.8 percent growth in the last quarter of 2016.

Growth last was that strong in July-September of 2015.

Analysts said government spending and a property boom spurred by easy credit were the main factors helping to driving stronger demand.

China saw its slowest growth in nearly three decades in 2016, at 6.7 percent. The official full-year economic growth target for 2017 is 6.5 percent.

"Currently, China's economy is demonstrating good signs of pickup in growth, overall price stability, expansion in employment and improvement in the international balance of payments," Mao Shengyong, a spokesman for the National Bureau of Statistics, told reporters in Beijing.

Fears of being dragged into a trade and currency war with the U.S. have abated after U.S. President Donald Trump toned down his previously antagonistic comments against Beijing.

A summit earlier this month with Chinese President Xi Jinping ended calmly, and the U.S. Treasury Department did not label China a currency manipulator in its latest assessment.

During the first quarter, investment in fixed assets such as factories expanded 9.2 percent from a year earlier, while retail sales grew 10 percent. Industrial production rose 6.8 percent, including a stronger-than- expected 7.6 percent year-on-year gain in March.

Although exports have also shown sharp improvement, strong lending and investment figures suggest Beijing is relying on its traditional strategy of powering growth through government stimulus. China's leaders have been trying to shift to an approach based more on consumer demand but tend to open the spending and credit taps at times when growth appears to be slowing too much.

"The question we need to ask is whether this investment-led model is sustainable as the authorities have trouble taming credit," said Raymond Yeung and David Qu, economists at ANZ.

The latest figures indicate China's economy is on track to meet its official growth target — a good sign for China's communist leaders, who don't like surprises and are preparing for a twice-a-decade party congress in the autumn to appoint new leaders.

"The 6.5 percent target this year, you could say it's more important than ever, because of the political reshuffle later this year," said Amy Zhuang, chief Asia analyst at Nordea Markets. "At least being able to maintain the stability in growth is very, very important for Beijing."

On a quarter-to-quarter basis, which is how other major economies report data, the economy lost steam, expanding just 1.3 percent. That's slower than 1.7 percent in the fourth quarter of 2016.

The economists at ANZ said such figures should be viewed cautiously because they might reflect changes in how the government made adjustments for seasonal factors.

Economists say they expect the boost from the government's policies and the property boom to persist for a few more months before fading later in the year.

Real estate plays an outsize role in fueling growth in the wider Chinese economy by spurring knock-on demand in the manufacturing and service sectors.

House prices will likely start cooling this year as tighter restrictions finally kick in, but Beijing will probably take steps to offset that decline with more stimulus to meet its annual growth target, Zhuang said.

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Wayne Zhang in Beijing contributed to this report.

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