BEIJING (Reuters) - China’s economy grew faster than expected in the first quarter as higher government infrastructure spending and a gravity-defying property boom helped boost industrial output by the most in over two years.

Growth of 6.9 percent was the fastest in six quarters, with forecast-beating March investment, retail sales and exports all suggesting the economy may carry solid momentum into spring.

But most analysts say the first quarter may be as good as it gets for China, and worry Beijing is still relying too heavily on stimulus and “old economy” growth drivers, primarily the steel industry and a property market that is overheating.

“The Chinese government has a tendency to rely on infrastructure development to sustain growth in the long term,” economists at ANZ said in a note.

“The question 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.”

Even as top officials vowed to crack down on debt risks, China’s total social financing, a broad measure of credit and liquidity in the economy, reached a record 6.93 trillion yuan ($1 trillion) in the quarter -- roughly equivalent to the size of Mexico’s economy.

Spending by the central and local governments rose 21 percent from a year earlier.

That helped goose the pace of growth in the first quarter well above the government’s 2017 target of around 6.5 percent, and pipped economists’ forecasts of 6.8 percent year-on-year.

Such a strong bolt from the gate could see Beijing once again meet its annual growth target, even if activity starts to fade later in the year, as many analysts widely expect.

“Main indicators were better than expected...which laid a good foundation for achieving the full-year growth goals,” statistics spokesman Mao Shengyong said at a news conference.

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SAME OLD GROWTH DRIVERS?

Once again, China’s policymakers leaned on infrastructure and real estate investment to drive expansion. Growth in both areas has accelerated from last year and helped offset slightly weaker growth in the services sector.

“Faster growth in industrial output is the primary factor in the first quarter surprise, and due mostly to higher value-added growth related to supply-side consolidation in heavy industry,” said Brian Jackson, China economist at IHS Global Insight.

Fixed asset investment rose 9.2 percent on-year, trouncing estimates, but IHS believes the growth was due entirely to faster spending in industry and construction.

Real estate investment remained robust, expanding 9.1 percent, while new construction quickened despite intensifying government measures to cool soaring home prices.

Most analysts agree the heated property market poses the single biggest risk to China’s growth, but predict the cumulative weight of property curbs will eventually temper activity, not produce an outright crash.

“Sales (growth) has started falling, which means tightening measures are starting to take effect,” said Shen Jianguang, an analyst at Mizuho Securities in Hong Kong.

More than two dozen cities announced property cooling measures in recent weeks, after curbs late last year appeared to have little lasting effect.

The construction boom has helped fuel the best profits for China’s industrial firms in years, giving them more cash flow to pay down debt or invest in more efficient plants.

Buoyed by a near 12 percent increase in housing starts, China produced a record amount of steel in March, Reuters data showed. But analysts say warning signs are flashing.

Rising inventories and recent falls in steel prices suggest output is growing faster than China’s demand, raising worries of a glut later in the year, which could heighten trade tensions with the U.S. and other major trading partners.

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INCOME GROWTH PICKS UP

There were also positive signs on the consumer front.

After slowing for five quarters, disposable income growth picked up to 7.0 percent, the fastest since late 2015.

Retail sales rebounded 10.9 percent on-year as consumers shelled out more for appliances and furniture for new homes.

Auto sales also showed signs of recovering after weakening early in the year after the government reduced subsidies.

Analysts are closely watching for signs that consumption is accounting for a greater share of China’s economy, which would

make growth more broad based but also reduce the need for more debt-fueled stimulus and reliance on “smokestack” industries.

Another bright spot was a further rebound in private investment, which had cooled in recent years, leaving the government to bear more of the burden of supporting the economy.

Private investment growth accelerated to 7.7 percent.

FOCUS ON STABILITY, THEN REFORMS

Though policymakers have pledged repeatedly to push reforms to head off financial risks, the government is keen to keep the economy on an even keel ahead of a major leadership transition later this year.

China’s central bank has gingerly shifted to a tightening policy bias in recent months, and is using more targeted measures to contain risks after years of ultra-loose settings.

It has nudged up short-term interest rates several times already this year and further modest increases are expected, especially if U.S. rates continue to rise, which could risk a resurgence in capital outflows from China.

“I think China should be directing the economy to slow down its growth in the long term...but on the contrary, growth is accelerating,” said Hidenobu Tokuda, senior economist at Mizuho Research Institute in Tokyo.

“This is good for now but it makes it difficult to see how China’s economic slowdown will land in the future. Uncertainties remain high.”