Customers dine at a restaurant in Beijing, on Oct. 17.TINGSHU WANG/Reuters
China’s economy grew at a faster-than-expected clip in the third quarter, while consumption and industrial activity in September also surprised on the upside, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery.
Rapidly weakening growth in the world’s second-biggest economy since the second quarter prompted authorities to step up their support steps, with Wednesday’s batch of data indicating the stimulus is starting to gain traction although a property crisis and other headwinds continue to pose risks to the outlook.
Gross domestic product (GDP) grew 4.9 per cent in July-September from the year earlier, data released by the National Bureau of Statistics showed, versus analysts’ expectations in a Reuters poll for a 4.4-per-cent increase but slower than the 6.3-per-cent expansion in the second quarter.
On a quarter-by-quarter basis, GDP grew 1.3 per cent in the third quarter, accelerating from a revised 0.5 per cent in the second quarter and above the forecast for growth of 1.0 per cent.
“It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment,” said Matt Simpson, senior market analyst at City Index in Brisbane.
The government is walking a tight rope as it tries to restore economic equilibrium, with policy makers having to navigate a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth and Sino-U.S. tensions over trade, technology and geopolitics.
Beijing has in recent weeks unveiled a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan, which has been hit hard this year owing to widening yield differentials as global interest rates remain elevated, led by the U.S. Federal Reserve’s tightening campaign.
Asian stocks pared their losses after the better-than-expected China data, while the yuan and trade-dependent Australian and New Zealand dollars all bounced. The yuan hit a one-week high of 7.2905 a U.S. dollar.
The recovery momentum suggests the government’s full year 2023 growth target of around 5.0 per cent is likely to be achieved.
“The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, as the growth target of 5 per cent is set to be achieved,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place.”
The statistics bureau said China would be able to hit the 2023 growth target if the fourth quarter growth tops 4.4 per cent.
The rosier-than-expected data have prompted international banks to upgrade their 2023 growth outlook, with Nomura raising its forecast to 5.1 per cent versus 4.8 per cent previously and JPMorgan lifting its forecast to 5.2 per cent from 5 per cent.
Moody’s Analytics has also raised its 2023 growth projection to 5 per cent from 4.9 per cent.
Industrial output in September grew a stronger-than-expected 4.5 per cent from a year earlier, but the pace was unchanged from August, according to the separate data. Analysts had expected a 4.3-per-cent increase.
Growth of retail sales, a gauge of consumption, also beat expectations, rising 5.5 per cent last month, and accelerating from a 4.6-per-cent increase in August. Analysts had expected retail sales to expand 4.9 per cent.
Fixed asset investment grew 3.1 per cent in the first nine months of 2023 from the same period a year earlier, versus expectations for a 3.2-per-cent rise. It expanded 3.2 per cent in the January-August period.
But a deepening downturn in the property sector, which accounts for nearly a quarter of economic output, poses a big challenge to policy makers as they seek to keep growth on track, analysts said.
The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1 per cent from a year earlier, after slumping 8.8 per cent in January-August. Fixed-asset investment by private firms fell 0.6 per cent in January-September year-on-year, highlighting weak private sector confidence.
The faltering property sector has hit some of the biggest developers in the country.
A grace period for a US$15-million coupon payment by Country Garden Holdings, China’s biggest private property developer, expired earlier in the day, fuelling fears that it had defaulted on its offshore debt.
“In the grand scheme of things, I don’t think individual developers running into further financial turbulence will be enough to derail things. The problems of the developers have been known to the market for some while now,” said Frederic Neumann, chief Asia economist and co-head of Global Research at HSBC.
All the same, efforts by policy makers to support big cities have failed to bolster confidence, underscoring the depth of the problems in the industry which slumped into a crisis two years ago.
“In the near-term, our expectations are still for a further round of 10bp rate cuts in Q4 from the PBOC, a step-up in the easing of home-buying restrictions, and modest increases in state-directed infrastructure spending,” Louise Loo, China economist at Oxford Economics, said in a note.
The International Monetary Fund on Wednesday downgraded its 2023 and 2024 growth forecasts for the Asian giant, saying the property slowdown could cause China’s GDP to decline.