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China economic growth shored up by consumption as industry eases

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Shoppers exit a Nike Inc. store at the Sanlitun Village shopping mall in Beijing, China, on Friday, March 23, 2018. The trade conflict between China and the U.S. escalated, with Beijing announcing its first retaliation against metals levies hours after President Donald Trump outlined fresh tariffs on $50 billion of Chinese imports and pledged there's more on the way. Photographer: Gilles Sabrie/Bloomberg

China’s economic expansion held up amid robust consumer spending, underpinning global growth and giving authorities room to purge excessive borrowing, while the industrial sector showed signs of modest slowdown.

Gross domestic product grew 6.8% in the first quarter from year earlier, matching both the previous quarter’s pace and projections in a Bloomberg survey Retail sales increased 10.1% in March from a year earlier, vs a forecast of 9.7% Industrial production rose 6.0% last month; forecast 6.3% Fixed-asset investment climbed 7.5% in the quarter A new urban surveyed-jobless rate stood at 5.1% at end-March
Steady growth offers support for President Xi Jinping’s mission to shore up financial stability, one of Beijing’s top goals along with reducing poverty and curbing pollution. The robust pace of expansion is a tailwind for the global economy which is seen maintaining its solid performance this year, providing needed support in the form of strong demand for China’s exports.

“The picture is pretty robust,” Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong, said in a Bloomberg Television interview. “Consumption is very strong, so that’s in line with the rebalancing story.”

What our economists say The steady expansion in GDP shows the economy shaking off threats from deleveraging and protectionism, according to a note from Bloomberg economists Tom Orlik and Fielding Chen. “Even so, a lower reading for nominal growth is a warning sign that the industrial reflation cycle that drove profits higher and made debt repayment more manageable in 2017 is turning down.”
Retail is getting a lift from online sales, which rose 35.4 percent in the first quarter. Another driver of activity was investment in environmental protection and cleanup, which surged 34.2 percent on year in the first quarter, according to the statistics bureau.

People’s Bank of China Governor Yi Gang last week said economic indicators performed better than expected in the first quarter amid continued improvement in the global outlook.

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Industrial output by the mining sector decreased 1.1 percent in March, compared with a 0.9 percent drop in December, while output for power supply increased 5.8 percent, less than the 8.2 percent increase in December.

“March data point to nascent signs of a growth slowdown underway, led by old economy sectors,” said Rob Subbaraman, chief economist for Asia ex-Japan at Nomura Holdings Inc. in Singapore. “We don’t expect growth in new economy sectors to fully offset the slowdown in the old, heavily-indebted sectors of the economy in the quarters ahead. This is a necessary adjustment to improve the quality of China’s growth.”

Headwinds may strengthen in coming months should Xi’s so-called critical battles against financial risk and pollution bite deeper or if trade tensions with the U.S. intensify. Property and infrastructure activity will weaken in the second half of this year, though manufacturing investment, solid consumption and strong external demand will cushion the impact, says UBS Group AG.

“This shows us that China can attain the growth target easily in 2018 even with slightly slower expansion in the second half,” said Raymond Yeung, chief greater China economist for Australia & New Zealand Banking Group Ltd. in Hong Kong. “It provides a good window to address some structural issues, especially deleveraging.” — Bloomberg

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