Problems now or problems later. China’s leaders have opted for problems later. Wall Street and its economists are willing, today, to follow that lead.
The National Bureau of Statistics reported that China’s GDP climbed by 6.9% in the first quarter from the first quarter of 2016. That’s a pick up from 6.8% growth in the fourth quarter of 2016 and marks a second-straight quarter of acceleration for China’s economy. It’s the first two-quarter acceleration in seven years. Economists surveyed by Bloomberg were projecting 6.8% growth
Other statistics painted a similarly positive picture. Retail sales were up 10.9% in March from March 2016. Industrial output rose 7.6%.
So what’s the rub? China’s growth continues to be heavily dependent on growth in lending and on spending on infrastructure. Fixed-asset investment, excluding rural areas, rose 9.2% in the first three months. That was an increase from 8.2% in the same period in 2016. Investment in property development gained 9.1% in the quarter year over year. That was up from 8.9% growth in the first two months of the year and from 6.9% in 2016. New lending and other credit grew more than estimated with aggregate financing up 2.12 trillion yuan ($308 billion.)
This growth in investment and lending isn’t good news if you are one of the regulators trying to prevent a bubble in the real estate sector or working to control reckless lending in the banking system. Most of the higher than expected growth in aggregate financing came from loans in the shadow banking sector. The worry is that many of these loans are secured by questionable collateral and have been invested in projects that will never be able to pay back the loan.
There were other parts of the report that worry me. China, which products half the world’s steel, produced a record quantity of steel in March. Good luck with that dumping thing, President Trump. Coal production also climbed in the quarter. (Oil production, on the other hand, stagnated at 3.91 million barrels a day,)
On the news Wall Street economists raised their estimates for GDP growth in China this year by a tenth or two to the neighborhood of 6.8%.