China’s economy grows 4.6% in Q3 amid property downturn

China’s economy experienced a marginally better-than-expected growth in the third quarter, according to data released today. However, the persistent property downturn and weak consumer spending continue to weigh heavily on economic activity, compelling policymakers to contemplate further stimulus measures to invigorate growth.

The world’s second-largest economy expanded by 4.6% year-on-year in the July-September period, surpassing the 4.5% forecast in a Reuters poll but decelerating from the 4.7% growth recorded in the second quarter.

Additional data, including industrial output and retail sales for September, also surpassed expectations, offering some encouragement to policymakers. Despite these positive indicators, the property sector remains a significant weak spot, reinforcing market calls for additional support measures.

Amid these developments, officials have significantly ramped up stimulus efforts to ensure the economy meets the government’s 2024 growth target of approximately 5%. However, a Reuters poll suggests that China’s economy might expand by 4.8% in 2024, falling short of Beijing’s target, with growth potentially cooling further to 4.5% in 2025.

Throughout the year, China’s economy has faced uneven growth, with industrial production outperforming domestic consumption. This imbalance has heightened deflationary risks amidst the property downturn and escalating local government debt.

Policymakers, historically reliant on infrastructure and manufacturing investments to drive growth, have pledged to shift their focus towards stimulating consumption. However, the markets are still awaiting detailed plans for a proposed fiscal stimulus package. Every quarter, the economy grew by 0.9% in the third quarter, compared to 0.7% growth in April-June.

Economic growth

Recent data has increased the risk of China entering a prolonged phase of deflationary pressures. Export prospects, which have been a rare bright spot for the economy this year, appear to be dimming due to foreign trade restrictions.

China’s export growth slowed sharply in September, with imports also decelerating significantly, falling short of forecasts and indicating that manufacturers are cutting prices to clear inventories ahead of impending tariffs from several trade partners.

China’s consumer inflation unexpectedly eased in September, while producer price deflation worsened, escalating pressure on Beijing to take measures to boost demand as exports weaken.

Last week, China’s finance minister pledged to significantly increase debt to rejuvenate growth, though the overall size of the stimulus package remains unspecified.

Caixin Global reported that China might raise an additional 6 trillion yuan (approximately US$842.60 billion) through special treasury bonds over three years to support the sagging economy with expanded fiscal stimulus. Reuters reported last month that China plans to issue special sovereign bonds worth about 2 trillion yuan (US$280 billion) this year as part of fresh fiscal stimulus.

In late September, the central bank announced its most aggressive monetary support measures since the Covid-19 pandemic, including interest rate cuts, a 1 trillion yuan (US$140 billion) liquidity injection, and other steps to bolster the property and stock markets, reported Bangkok Post.

Analysts polled by Reuters anticipate a 20-basis points reduction in China’s one-year loan prime rate, the benchmark lending rate, along with a 25-basis points cut in banks’ reserve requirement ratio in the fourth quarter.