China’s economy grew by 6.7 per cent last year, accelerating to 6.8 per cent in the last quarter – the first such growth in two years.

This cements an economic stabilisation that gives Beijing a buffer as it transitions to a neutral policy and prepares for potential trade tensions with Donald Trump.

China powered through a volatile start to 2016, propelled by robust consumption from an increasingly wealthy middle class. With manufacturing also rebounding and deflation tamed, the Central Bank is turning to neutral policy to address a debt binge that inflated asset bubbles and could threaten the long-term outlook.

Retail sales in December were up 10.9 per cent on the same period the year before – beating a projected rise of 10.7 per cent. Industrial production rose 6 per cent in December, just short of the estimated 6.1 per cent rise. Fixed-asset investment excluding rural areas expanded 8 .1 per cent for the full year.

“As China’s traditional growth drivers of investment and exports have weakened, Chinese private consumption has become the key engine for economic growth,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. “This trend is expected to continue over the medium term.”

That points to continued stable growth ahead of a twice-a-decade Communist Party leadership reshuffle this year. Consumption accounted for 64 per cent of 2016 growth. Services, which accounted for more than half of output for the first time in 2015, made up 51.6 per cent last year, official data showed.

Yet, behind the solid headline figures, there’s a widening divergence among regions and industries that’s creating winners and losers across the nation of 1.4 billion people.

The full-year expansion in 2017 will edge lower to 6.4 per cen, according to Bloomberg, while the IMF has raised its forecast to 6.5 per cent. Maintaining growth requires fending off policy challenges including a slumping yuan that posted its biggest annual drop in two decades, and increasing capital flight pressure.

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Policymakers unleashed more fiscal stimulus last year to help prop up growth, in addition to keeping the old benchmark interest rate at a record low. New money supply management tools are coming to the fore as an alternative to broad easing that could weaken the yuan.

Reflation has been a bright spot as the producer price index snapped four years of deflation. Manufacturing has strengthened with official gauges at or near multi-year highs. Beyond those promising signals, exports have fallen for months amid tepid global demand.

While the economic rebalancing toward consumer-led growth continues, reforms of inefficient state-owned enterprises in heavy industries have stalled – the old smokestack economy came roaring back last year, competing more for capital against private firms.

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Last year’s 6.7 per cent expansion came at the expense of 15.4 per cent loan growth, while outstanding credit likely rose to about 264 per cent of GDP, fuelling concern about financial frailty, Bloomberg Intelligence economists Tom Orlik and Fielding Chen wrote in a report. “China’s economy ended 2016 with short-term growth firmly on track, but long-term sustainability veering further off it,” they said.

Credit growth remains robust with shadow-banking making a comeback, fuelling concerns deleveraging isn’t happening despite official pledges. Authorities also are trying to deflate big-city property prices that soared then moderated near year-end on tightening measures.

“The stabilisation of the economy was largely due to the rally in the property market, which has also triggered concerns of an asset bubble,” Zhou Hao, an economist at Commerzbank in Singapore, wrote in a report. “In the coming year, China will put more effort to balance growth, financial risks and external challenges, especially from Trump.”