Gross domestic product for the three months ending March 31 grew by 6.9% on year, rising from 6.8% in the previous quarter. It was the strongest rate of quarterly growth since 2015 and put the government on track to meet its 6.5% annual growth target.
BlackRock CEO Larry Fink had already predicted a possible increase at a dinner last week: “A year ago now we were worried that China was going into a recession,” he said. “The Chinese leadership were very deliberate in how they re-navigated that economy. And that economy today is growing at 6.5-to-6.7% and, if anything, it may tick back up to 7%.”
To be sure, Fink said president Xi Jingping’s government will be especially motivated to show how strong the economy is in the lead up to their party congress in October. Indeed, much of the growth was still driven by government-backed infrastructure spending and a hot property market.
The latest strong growth figures could inspire authorities to risk easing stimulus measures. In the longer term, they’re hoping economic growth will be supported by domestic consumption, rather than debt-fueled industrial production.
In a positive sign, first-quarter retail sales increased by 10.9% as citizens spent more on home wares and automobiles.
“The Chinese government has a tendency to rely on infrastructure development to sustain growth in the long term,” economists at Australia & New Zealand Banking Group said in a client note this morning.
“The question we need to ask is whether this investment-led model is sustainable as the authorities have trouble taming credit. We need to watch closely whether China’s top leadership will send a stronger signal to tighten monetary policy shortly.”
Ford is among companies that have recently announced new investments in China, which CEO Mark Fields said still has large potential for growth in car and pick-up truck sales.
Last month, Prudential CEO Mike Wells told CNBC that fears about China’s debt levels were overblown. “They haven’t tapped the consumerism that’s in the economy by any means and I think there’s a lot of upside,” he said.