The Problem With China's Economic Growth


By Lingling Wei, Dow Jones Newswires

via FOXBusiness - July 17, 2017


BEIJING China touted its buoyant economic expansion this year as evidence it can reduce debt without harming growth. But the outlook appears hazier when considering the property market's outsize role in the economy, jittery consumers and signs that significant deleveraging hasn't fully set in.


Beijing said domestic demand fueled 6.9% growth in the second quarter, a result that matched last quarter's growth rate and beat economists' forecasts. However, economists and analysts say the result has to be measured against a continued reliance on problematic sectors such as real estate and a lack of meaningful progress toward cutting the country's debt.


Meanwhile, Chinese consumers aren't spending as fast as their wages rise, suggesting many have become more financially strapped because of high property prices.


The latest data is "a blip amid a growth deceleration," said China economist Larry Hu at Macquarie Securities in Hong Kong.


Armed with a more stable yuan and reduced capital outflows, Beijing has been able to tighten credit without causing market panic or affecting headline growth. That effort has forced banks and other financial institutions to cut back on borrowing from each other. But it hasn't led to significant debt reduction in the economy.


"There hasn't been too much deleveraging going on," said Zhu Chaoping, a Shanghai-based economist at UOB Kay Hian.


In June, Chinese banks issued a higher-than-expected 1.54 trillion yuan in new loans, or roughly $227 billion, compared with 1.1 trillion yuan in May.


More than a third of that amount went to home lending. Indeed, a resilient property market is the most important driver of China's growth so far, according to economists including Messrs. Zhu and Hu.


The results mean that in a year that will see a twice-a-decade leadership transition, Beijing will have little problem reaching its full-year growth target of about 6.5%.


But Beijing has to continue to clamp down on credit to shift to a more-sustainable growth model, leaders say...