China Growth Slowest in Seven Years Amid Fears of Debt Overload

Chinese growth has slowed to its weakest pace in seven years, as analysts warned that the world\'s second-largest economy has become increasingly reliant on debt to keep growing.

Published: 16th April 2016 09:56 AM  |   Last Updated: 16th April 2016 03:55 PM   |  A+A-

LONDON: Chinese growth has slowed to its weakest pace in seven years, as analysts warned that the world's second-largest economy has become increasingly reliant on debt to keep growing.

Official figures showed that China's economic output rose by 6.7pc in the first quarter of the year, compared with a 6.8pc increase in the final three months of last year.

A spokesman for the National Bureau of Statistics (NBS), which compiled the data, said the growth was "better than expected" and the economy showed "a turn to stabilisation".

The pace of quarterly growth was the weakest reported since the financial crisis in 2009. The news came as fears have grown about China's growth prospects, and the possibility of a sudden slowdown in activity, or a so-called "hard landing".

While the growth data appeared to show only a moderate dip in activity, in part as a result of stronger housing and infrastructure activity, the NBS spokesman admitted that "difficulties on structural adjustment persist and downward pressure on the economy cannot be ignored".

Communist leaders have acknowledged that growth is likely to remain lower than the levels achieved in recent years. However, Li Keqiang, China's premier, has said that missing the government's annual growth target of 6.5pc to 7pc would be "impossible".

Official economic statistics are met with a great deal of scepticism by outside observers. Analysts at Capital Economics have estimated that actual growth has slowed to an annual pace of just over 4pc.

Wei Yao, a Societe Generale economist, said that "the Chinese government was clearly giving growth all the attention in the first quarter, and now the question is how long it will maintain this undoubtedly unsustainable model".

She added that the Chinese economy now looked "like an old-styled credit-backed investment-driven recovery", as several analysts warned that a sharp build up in credit indicated that Beijing's leaders had begun to rely on debt to fuel growth. New loans totalled 2.34 trillion yuan (pounds 250bn) last month, according to the People's Bank of China. Economists had expected just 1.4 trillion yuan of additional credit.

Ms Wei said that these developments showed "an uncanny resemblance to the beginning of the 'four trillion stimulus' package in 2009".

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