In the absence of an unexpected stumble in the next five weeks, it looks like China will record yet another strong year of economic growth in 2016.
Yes, the economic miracle of the past two decades remains intact, something few were expecting when increased capital outflows and a noticeable slowdown in economic activity spurred the most acute market selloff seen since the dark days of the global financial crisis.
Like a superhero arriving in the nick of time, the government unleashed a wave of fiscal stimulus, which, along relaxed property market restrictions, encouraged new infrastructure and residential construction investment, something that continues to permeate through the Chinese economy today.
It’s been a powerful and effective initiative to bolster the economy, even if it does herald back to the “old China” growth model of building things using debt.
While concerns have been raised that this model cannot go on forever without leading to potentially unsettling financial and social consequences, such has been the success of its recent fiscal stimulus push that the government is going to do more.
One look at the chart below from Credit Suisse underlines this point. It shows the value of infrastructure projects approved by China’s National Development and Reform Commission (NDRC) every month over the past three years, with those for 2016 shown in red.
There’s clearly been an acceleration recently after a steady pipeline of approvals earlier in the year.
So far in November, the NDRC has approved projects worth a total of 338 billion yuan, adding to the 299 billion yuan approved in October.
To Vincent Chan, Weishen Deng and Ray Farris, analysts at Credit Suisse, not only does this suggest that the Chinese economy will end 2016 on a strong footing, but lays the foundation for even stronger levels of growth in 2017.
“The latest move from the state planning agency supports our view that infrastructure investment growth should help to support stable overall investment growth in the coming quarters, as well as our view that GDP growth is likely to accelerate to 6.8% into 2017,” the trio said in a note released late last week.
They also note that the recent acceleration in infrastructure approvals followed the implementation of tighter restrictions on home purchases in some of China’s largest cities, suggesting that the government may be looking to counter an expected slowdown in residential construction through increased public works.
“There will be a time lag between project approvals and actual project implementation,” says Chan, Deng and Farris.
“Although the time lag could vary between three months to a much longer period, more project approvals from the NDRC still mean that the project packages that are standing by are bigger when the growth support is needed.”
According to China’s National Bureau of Statistics (NBS), the economy grew by 6.7% year-on-year in the September quarter of this year, unchanged from the pace reported in the prior quarter.
Chinese policymakers are targeting economic growth this year of between 6.5% to 7%.
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