China’s Third-Quarter GDP Slows as Negatives Outnumber Positives

Headquarters of the People's Bank of China, the central bank, in Beijing, China, on Dec. 13, 2021. (Andrea Verdelli/Bloomberg via Getty Images)

Muted global demand, deflationary pressures, and a faltering real estate market continue to dent China’s growth, as the world’s second-largest economy slowed to 4.9 percent on the year in the July–September period, down from 6.3 percent the quarter before, according to the National Bureau of Statistics (NBS) on Wednesday.

The NBS also warned that the external environment was growing “more complex and grave” and that domestic demand was still insufficient.

After nearly three years of “zero-COVID” restrictions, China opened up its economy in late 2022, providing it an instant boost early this year as more people rushed to stores and eateries.

However, the post-pandemic rush suddenly stalled soon after, and earlier than anticipated. While Beijing had initially set a growth target of 5 percent for the full year, the financial street was quickly disappointed, and analysts started predicting that growth would likely fall to 4.5 percent, given that China’s economy was still struggling.

Against this backdrop, while the September quarter’s growth beat expectations—with a consensus of 4.5 percent and Nomura’s 4.1 percent)—China’s economy is not out of the woods by any means, said the ANZ Group

“[The] September’s data indicate a two-speed economy,” wrote analysts at ANZ  in an exclusive client note accessed by The Epoch Times. “[Although] retail sales rose decently at 5.5 percent, and jobless rate surprisingly fell to 5 percent from 5.2 percent year on year (YOY), the output gap remains negative as indicated by weak domestic prices, and weakness in investment suggests the real interest rate is too high,” said the note.

Mixed Signals

According to NBS, industrial production growth stabilized at 4.5 percent in September, and remained unchanged from August, which was “a touch higher than market expectations of a consensus of 4.4 percent and Nomura’s 4.3 percent,” said a Nomura Asia Insights note accessed by The Epoch Times.

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But fixed-asset investment growth slowed to 2.5 percent year over year in September, again below Nomura’s forecast of 3.2 percent.

Retail sales growth, though, were stronger-than-expected to 5.5 percent year over year in September from 4.6 percent in August, which was above market expectations (of the consensus: 4.9 percent) as well.

Yet, the household saving rate fell well below pre-pandemic level to 30.2 percent in the third quarter from the previous quarter’s 31.8 percent. “This data series is highly seasonal, and the 30.2 percent reading in the third quarter has already dropped below the pre-pandemic level of 32.3 percent in third quarter 2019, which suggests the decent post-COVID pent-up demand is unsustainable,” added the Nomura note.

The lower-than-expected numbers of many other high-frequency indicators like local government spending, retail sales, and trade volume growth, to name a few, also signal that tides are yet to turn on China’s shaky recovery, said analysts.

Property Still a Drag

Nevertheless, while the piecemeal support measures of the recent weeks provided a temporary boost in tier-one cities, the rest of the country struggled with an oversupply of homes, and low confidence made it difficult for the property sector to recover, noted analysts.

According to the NBS, property investment growth worsened to -11.2 percent in September from -10.9 percent, while in volume terms, growth of new home sales tanked by over 10 percent year over year.

Growth of new home sales in value terms remained in the negative territory too (at -13.9 percent) and the growth of local government revenues from land sales stood at negative 19.6 percent year over year, far below the government target of a 0.4 percent rise for the year.

Amid the worsening property collapse and the surging property credit fallout since mid-August, Beijing finally kicked off a new round of real property easing in late August.

However, cutting mortgage rates, lowering down payment ratios and easing restrictions on home transactions on their own were clearly not enough, said Nomura.

Don’t Pop the Champagne Yet

Consequently, “the economic recovery is still in its infancy,” noted a Moody’s Analytics note accessed by The Epoch Times.

With the property market’s deterioration showing no signs of slowing, a black cloud lingers overhead. Direct support for households could be the aspirin needed to shake the property hangover, but such support looks increasingly unlikely, the notes added.

Small wonder, then, that the NBS forecasts that China’s recovery is still distant.

“We should be aware that the external environment is becoming more complex and grave while the domestic demand remains insufficient and the foundation for economic recovery and growth needs to be further consolidated,” the NBS said.

Given that household confidence is likely to remain low and local governments’ finances are likely to remain constrained in the coming year, limiting their ability to increase government spending and infrastructure investments, UBS Securities predicts that China’s economic growth will be even slower in 2024, at around 4.2 percent.