World Economy

China Ends 2016 With 6.8% Growth, Lowest in 26 Years

Concerns have persisted over the mainland economy’s health, as private-sector debt has surged
China Ends 2016 With 6.8% Growth, Lowest in 26 Years China Ends 2016 With 6.8% Growth, Lowest in 26 Years

China’s economy, the world’s second largest, grew 6.7% year on year in 2016, the slowest pace of growth in 26 years but still within the government’s target range set for the year, official data showed on Friday.

Growth in the fourth quarter came in at 6.8%, accelerating from the 6.7% rise registered in the third quarter but still the slowest quarterly growth since the global financial crisis, figures released by China’s National Bureau of Statistics said, PTI reported.

However, China has revised the 2015 figures on January 9 under which the size of the world’s second largest economy was officially stated to be 68.91 trillion yuan ($9.96 trillion) up 354.6 billion yuan from its preliminary figure.

In dollar terms however, the figure was less comparatively as yuan continued to decline sharply since last year trading around 6.90 to a dollar.

The 6.7% was in the range of 6.5 to 7% official target fixed by Chinese Premier Li Keqiang last year. Chinese President Xi Jinping has directed officials that the economy should not go down below  6.5%.

China’s economy finished a tumultuous 2016 on a positive note as consumers stepped up spending and the property market rebounded.

China’s statistics bureau said that consumption accounted for 64.6% of GDP in 2016, while per capital consumption rose 8.9% on year to 17,111 yuan ($2,490).

Property development also contributed to growth, with total investment rising 6.9% for the year, up 5.9 percentage points from 2015.

This may be China’s slowest pace of growth in 26 years, but it remains within the range for Beijing to meet its longer-term goal of doubling GDP and per capita income by 2020 from 2010 levels.

Helen Zhu, head of China equities at Blackrock, told CNBC’s “Street Signs” on Friday that it was a “solid set” of numbers, especially compared with “strong doubts” about the economy a year ago.

“The property sector and the auto sector are quite buoyant for the year on the back of some loosening. I think those are all positive surprises in 2016. All in all, a much better year than people had previously anticipated,” she said.

 Economy Likely Stabilizing

The figures likely signaled that China’s economic growth is starting to stabilize amid the country’s transition toward domestic consumption and away from manufacturing- and investment-led growth, Reuters reported.

Concerns have persisted over the mainland economy’s health, as private-sector debt has surged even as the amount of growth from additional debt has declined.

But the economy in recent months has received a fillip from a pickup in the property sector.

Additionally, reforms aimed at pruning sectors with too much capacity have been bearing fruit, helping to contribute to a pickup.

China was set to announce a lower economic growth target for 2017 to around 6.5%, from last year’s range of 6.5 to 6.7%, Reuters reported, citing people familiar with the matter.

Zhu said she expected the economy would decelerate this year, but she didn’t consider that a problem.

 Cuts Reserve Ratios

China has allowed its five biggest banks to temporarily lower the amount of money that they must hold as reserves to relieve pressure in its financial system as demand for cash surges ahead of the Lunar New year holiday, three sources with direct knowledge of the matter said.

The People’s Bank of China has cut the Reserve Requirement Ratio for the banks by a full percentage point, taking the ratio down to 16%, the sources said.

The central bank’s move, its first reduction in RRR in nearly a year, comes after it pumped a record amount of liquidity into markets this week in a bid to avert a cash crunch heading into the country’s biggest holiday of the year.

Short-term funding costs had spiked to their highest levels in nearly 10 years earlier this week on fears that liquidity was sharply tightening, sparking a jump in the yuan currency.

Key funding and money market rates had shown signs of easing on Friday after the PBOC’s massive injections, but remained well above normal levels.

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