China growth beats forecasts in face of trade row, financial risk

Chinas economy grew more than expected in the first quarter as it withstood headwinds from Beijings fight against financial risk and pollution, and trade tensions with the United States.

While acknowledging the potential negative impact of a US trade war officials on Tuesday warned the country faced greater downside risk at home, citing the need for reforms.

The world's number two economy expanded 6.8 percent in January-March, better than the 6.7 percent tipped in an AFP survey of economists and the same as the previous three months.

It is also much better than the annual rate of around 6.5 percent targeted by the government.

Growth remained resilient even as Beijing kicked its war on smog into a high gear during the winter months by cutting production for many steel smelters, mills and factories.

"The national economy maintained the momentum of steady and sound development," said Xing Zhihong, a spokesman for the National Statistics Bureau. "The economic performance continued to improve and the economy was off to a good start."

Fears of a China-US trade war have been simmering in recent weeks, with Washington and Beijing exchanging threats of tit-for-tat levies on hundred of billions of dollars worth of goods.

US President Donald Trump has issued the warnings as part of his "America First" protectionist agenda that has focused on what he calls unfair practices by China that are killing American jobs.

Last week his Chinese counterpart Xi Jinping sounded a conciliatory note, promising to reduce tariffs on cars and open up the economy further.

For the past decade, about 20 percent of China's exports have been ferried to the US, according to Moody's Investors Services, which forecasts a material macroeconomic impact if Trump makes good on his threats with the consequences vibrating beyond China's end exporters and deep into the economy.

Daunting tasks

While a tariffs spat with Trump has yet to make a significant impact, Commerzbank economist Hao Zhou warned "the overall growth is still under pressure".

"The trade tensions are likely to persist over the foreseeable future, clouding the trade and growth outlook."

Xing at the statistics bureau acknowledged the cloud of "international economic uncertainties" but said "China-US trade frictions do not pose a problem for China's economy".

Instead, he pointed to domestic risks to growth.

"The problems of unbalanced and inadequate development in China are acute and the tasks for reform and development are daunting," he said.

After years of breakneck growth driven by exports and debt-fuelled investment, authorities are increasingly worried about a possible credit crisis and are stepping up their battle against financial risk.

And the forecast-beating growth will give policymakers room to push through measures to battle those hazards and also address pollution.

Last week, the central bank released data showing total financing grew at 10.5 percent in March, the slowest pace on record, according to China-focused economist Andrew Polk.

"We think a further (economic) slowdown is on the cards before the end of the year," said Julian Evans-Pritchard of Capital Economics, pointing to the drags "from tighter fiscal policy and slower credit creation" that will weigh on activity.

But China is counting on its 1.4 billion consumers to pick up the slack.

Retail sales grew 9.8 percent in the first quarter on-year, beating forecasts of 9.7 percent in a Bloomberg News survey.

Output at China's factories and workshops expanded 6.8 percent for the first quarter, matching the expansion seen during the same period last year, but below the 6.9 percent forecast by Bloomberg News. Industrial production grew six percent in March.