China economy grows faster than expected, but falls short of targets as risks loom

China’s economy expanded faster than economists expected in the September quarter but the poor performance of the nation’s property market and weak retail and import data underscored the nation’s ongoing growth challenges.

China, the world’s second-largest economy, posted a 3.9% increase in gross domestic product in the July-September period from a year earlier, the national bureau of statistics said.

The GDP figures, delayed a week to avoid clashing with the key Communist party Congress that granted Xi Jinping an unprecedented third term as leader, beat forecasts of about 3.2-3.3% growth.

The result, though, lagged the official target for 2022 of 5.5%, as the economy continued to battle disruption from lockdowns prompted by the zero-Covid policy. The International Monetary Fund forecasts China’s economy will expand only 3.2% in 2022, which would be the slowest rate since the 1980s, excluding the 2.4% Covid-affected pace in 2020, AP said.

The “biggest takeaway” is that “Covid is still driving the economy,” Iris Pang, chief economist for Greater China at ING Groep NV, told Bloomberg News.

As in previous downturns, Beijing is relying on investment in infrastructure and industrial output to revive the economy.

Net exports, too, added to quarterly GDP but slowing growth in trading partners will probably sap that source of stimulus in the future, economists such as Michael Pettis at Peking University have argued.

Driving the September quarter growth was the 5.7% year-on-year increase in so-called fixed assets investments, the NBS said. That expansion was up 1.5 percentage points on the June quarter, although the September monthly rise alone was just over 0.5%.

Industrial output in September was up 6.3%, beating both expectations for a 4.5% expansion and August’s 4.2% rise, AP reported.

Exports in September rose 5.7% from a year earlier – the slowest pace of growth since April – and down from 7.1% in August. Imports were almost unchanged at 0.3%, shy of the 1% expansion tipped by economists, Reuters reported.

While retail sales grew 2.5% for the month, the pace was less than half the 5.4% pace in August, missing the 3.3% forecast and underlining China’s still fragile domestic demand, the agency reported.

That fragility extends to the property sector, where most indicators remain pointed lower. The industry plays an outsized role in China, where the value of property is roughly double that of the US’s and triple Europe’s, despite the economy being only about three-quarters as large, Pettis has said.

China’s real estate sector contracted for a fifth straight quarter in the latest three months, Bloomberg cited bureau data as showing, extending its longest slump in history. Home prices fell for a 13th consecutive month in September.

More importantly, new home prices sagged for a second consecutive month in September, Reuters reported. That result may indicate buyers remain wary of spending money on apartments that may never get completed despite a flurry of government policies to bolster demand.

Developers were yet to deliver about 40% of the homes they sold in advance between 2013 and 2020, in relatively good times, Pettis said earlier this year.


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