The Chinese economy made a strong finish to a difficult 2012 after its growth rebounded in the fourth quarter, setting the stage for a good start to this year.

For 2012 as a whole, Chinese growth was 7.8 per cent, its slowest in more than a decade, dragged down by global woes and a domestic campaign to deflate a property bubble.

But the economy closed off the year with a jump to 7.9 per cent year-on-year growth in the final three months, up from 7.4 per cent in the third quarter and breaking a streak of seven consecutive weaker quarters.

“Overall the economy has been stabilising,” the national statistics bureau said in a statement on Friday.

The rebound was driven by a jump in infrastructure spending by the government, which began in the middle of the year when worries mounted about the depth of the slowdown. It was a far cry from the massive stimulus deployed by China when the global financial crisis struck in 2008, but accelerated approvals for rail, road and drainage projects, among others, gave the economy a much-needed boost.

A loosening of monetary policy, including two mid-year interest rate cuts, fed through into improved sentiment about property – the single most important sector in the Chinese economy, accounting for more than 10 per cent of GDP – and a recovery in housing prices and construction activity lent support to the rebound.

Exports also stabilised towards the end of the year, with China running large trade surpluses that added to the momentum.

Other data released on Friday showed that investment slowed a touch in December. Chinese fixed asset investment rose 20.6 per cent in 2012 from a year earlier, down from the 20.7 per cent pace in the first 11 months.

Industrial production was up 10.3 per cent in December year-on-year, up from 10.1 per cent in November. Retail sales increased 15.2 per cent year-on-year, up from 14.9 per cent a month earlier.

Despite the positive developments, there remain concerns about the durability of the rebound.

China went into reverse in the second half of 2012 in its efforts to rebalance its economy away from a reliance on investment. Though steady, consumption took a back seat to capital spending as a driver of growth.

Worried that local governments might be racking up dangerous debts in their pursuit of a stronger GDP, Beijing has recently ordered a halt to their “irregular” financing through shadow bank institutions, a policy shift that could weigh on investment prospects later this year.

One key question is whether the country’s new leaders, being installed this year across China from the central level down to villages, will push for large spending projects to consolidate their hold on power. Previous transitions of power have been accompanied by a surge in investment, but Beijing has been trying to head that off this time.

“We should focus on changing the mode of economic development and improving the quality and efficiency of growth,” the statistics bureau said.

But Cao Heping, an economics professor at Peking University, said it would take a while for the government to change course.

“Until top leaders with the party reach a consensus on the growth model for the next decade, I would expect basic continuity in economic policies,” he said.

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