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China’s economic growth stays on a steady pace

BEIJING - China’s economic growth held steady in latest quarter, shored up by a bank lending boom and consumer spending while trade weakened.

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 -- both of which regulators see as a risk and are trying to restrain.

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.

An unexpectedly sharp slowdown over the past two years prompted fears of politically dangerous job losses. Beijing launched mini-stimulus measures with higher spending on construction of highways and other public works.

Exports have contracted this year due to weak global demand, but retail sales, especially e-commerce, are growing faster than the overall economy.

Retail sales rose 10.4 percent in the first three quarters, up 0.1 percentage point from the first half, according to the National Bureau of Statistics. Growth in service industries overall, 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.

“Third-quarter data signaled that economic growth has stabilized at a healthy pace, and that 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.

“The most recent data do not materially impact our expectation of a minor GDP deceleration in the fourth quarter, or for a more significant deceleration in 2017 to 6.3% growth,” said Brian Jackson, China economist at IHS Global Insight.

Jackson also pointed to a difficulty in assessing Chinese growth from the outside: “A separate question is the plausibility of Chinese growth remaining unchanged over the past three quarters. ... This naturally invites doubt, especially when the official growth reading is centered within the government’s target range.”

He added that “While harboring these doubts is justified, a nuanced assessment using physical production data points to an acceleration, rather than stability, during the third quarter. Our estimates indicate that growth was possibly overreported in the first half, but is possibly slightly underreported in the third quarter.”

Repeated infusions of credit to prop up growth since the 2008 global financial crisis has led to a rapid run-up in China’s debt to the equivalent of 250 percent of GDP. That has prompted warnings the country could face a financial crisis if debt growth isn’t controlled.

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.”