China grows in third quarter but momentum slows

China’s economic growth in the third quarter slumped to its slowest pace in a year, as a property slowdown and energy shortages highlighted rising pressure on policymakers.

Gross domestic product grew 4.9 per cent year on year between July and September, according to data released by the National Bureau of Statistics yesterday, compared with 7.9 per cent in the three months ending in June. On a quarter-on-quarter basis, growth was just 0.2 per cent.

The figures add to the pressure building on President Xi Jinping as he enters the final year of his second term and pursues an ambitious “common prosperity” strategy, an effort to tackle “excessively high incomes” and encourage wealth redistribution.

The Chinese leader’s priorities include a crackdown on leverage in the struggling property sector that could mark a shift away from the country’s debt-fuelled economic model.

Policymakers are also grappling with an energy crisis that has led to power rationing, pushed factory gate inflation to its highest level since 1995 and forced the government to increase coal production despite pledges last year to reduce carbon emissions. China has also had to deal with coronavirus outbreaks, which have led to travel restrictions.

“After entering the third quarter, risks and challenges at home and abroad increased with the pandemic continuing to spread and the recovery of the world economy slowing down,” said Fu Linghui of China’s statistics bureau. Fu added that the “impact of tight energy supply on the economy” was “temporary” and the real estate market had “generally stabilised”.

Tommy Wu, lead economist at Oxford Economics, said “electricity shortages and production cuts will become less of a problem” in the fourth quarter but the real estate downturn “should weigh substantially” on growth to the end of the year. “We expect more measures to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of credit and real estate policies.”

People’s Bank of China officials made no reference to any potential cut in the reserve ratio requirement, a way of freeing up liquidity, in a briefing on Friday.

China’s economy far outperformed others in 2020, driven by a construction boom, industrial activity and soaring exports, after Covid-19 cases slowed. But the latest data reflect a loss of momentum, with industrial production growing 3.1 per cent in September and edging just 0.1 per cent higher month on month. Retail sales, a gauge of consumer spending that has lagged behind the wider recovery in part because of strict Covid-19 travel restrictions, beat expectations to grow 4.4 per cent.

The country’s reliance on a credit-fuelled investment binge to counter the drag of the pandemic, combined with bank reserve cuts in mid-2020, led to surging home prices in major cities.

But the government has moved to constrain mortgage lending and borrowing by property developers, casting a shadow over a sector that contributes more than a quarter of economic output. Last month Evergrande, China’s second-largest developer by sales, missed a series of bond payments, leading to a collapse in investor demand for bonds issued by other property groups.

Despite China’s broader slowdown, exports grew 28 per cent last month year on year in dollar terms, in a sign of resilience for the trade sector despite the energy crisis and supply chain challenges. The CSI 300 index of Shanghai and Shenzhen stocks was down as much 1.8 per cent after the data were released.

Additional reporting by Xinning Liu in Beijing and Hudson Lockett in Hong Kong

4.9% Growth in GDP year on year between July and September

0.2% Growth on a quarter-on-quarter basis in China