China’s economy demonstrated robust growth in the third quarter, expanding by 4.5% year-on-year, surpassing analyst expectations and marking an improvement from the previous quarter’s 4.3%. This acceleration was primarily fueled by a significant surge in exports, which offset weaknesses in the domestic property market and consumer demand.
Despite the positive headline figure, the growth remains uneven, with exports acting as the main engine while domestic consumption and investment show signs of sluggishness. Economists anticipate continued government support through fiscal measures to bolster the economy in the coming quarters.
- China's economic growth accelerated to 4.5% in the third quarter, picking up from a three-year low of 4.3% in the prior quarter.
- For the first nine months of this year, fixed asset investment in urban areas declined 7.2%.
- In September, retail sales eked out 1.1% growth, and Industrial output grew 5.5% from a year earlier.
- The urban unemployment rate stood at 5.2% in September.
China's economic expansion gained significant momentum in the third quarter, reaching a robust 4.5% year-on-year growth. This acceleration, driven primarily by a surge in exports, surpassed market expectations and marked an improvement from the 4.3% growth recorded in the second quarter, which had been a three-year low. The strong performance in exports helped to counterbalance the persistent challenges posed by a downturn in the property market and subdued domestic consumer spending.
The latest figures exceeded the 4.4% expansion anticipated by economists polled by Reuters. This resilience highlights the economy's reliance on its manufacturing sector and international demand, even as domestic headwinds persist.
"The rebound in September salvaged the lukewarm performance in July and August," noted Tianchen Xu, senior economist at Economist Intelligence Unit. Xu attributed this recovery to enhanced government investment, which helped stabilize fixed asset investment, a consistently strong external sector, and a favorable base effect. China's monthly trade surplus reached a remarkable record high of $133.5 billion in September, underscoring the strength of its export engine.
Xu forecasts that these driving forces will likely propel growth into the fourth quarter, projecting a full-year growth rate of 4.7%. The data indicates an economy that continues to depend heavily on its factories and overseas markets, while households and private investors remain cautious. The average growth for the first nine months of the year stood at 4.6%, aligning with Beijing's official target range of 4.5% to 5%.
In September, retail sales showed a modest but encouraging 1.1% growth, surpassing analysts' forecasts of 0.6%. Industrial output also grew by 5.5% year-on-year, meeting expectations. The urban unemployment rate in September was reported at 5.2%.
However, fixed asset investment in urban areas for the first nine months of the year saw a slight decrease of 7.2% compared to the same period in the previous year, a marginal improvement from the 7.3% drop estimated in a Reuters poll. Investment in real estate development continued its downward trend, falling by 20.6% in the January to September period, a deeper decline than the 19.9% drop recorded in the first eight months.
"The prolonged housing slump will continue to limit the spillover from stronger industrial activity to the wider economy," stated Sheana Yue, senior economist at Oxford Economics, pointing out the impact of shrinking household wealth stored in property. Yue expressed skepticism about any immediate signs of a bottoming out in the property market, citing weak home sales, construction starts, and prices.
An Uneven Recovery: Exports Shine While Domestic Demand Falters
Beijing's strategy to boost economic growth has heavily relied on a surge in exports, a sector now facing increasing scrutiny from international trading partners due to rising energy costs and its dominant role. Concurrently, other crucial segments of the economy, including consumer spending and the property sector, continue to grapple with weakness, creating a lopsided recovery.
"It is clear that domestic imbalances between supply and demand continue rising," commented Eswar Prasad, an economics professor at Cornell University. He suggested that the government might adopt a more passive stance rather than implementing significant stimulus or much-needed reforms.
Producer prices saw their fastest rise in over four years in September, increasing by 5%, while consumer inflation remained below 1%. This divergence points to persistent excess capacity and weak demand, which are limiting businesses' ability to pass on costs. "This potentially leaves firms to absorb more of the cost shock through lower margins rather than higher selling prices," noted Yue.
Analysts largely anticipate the People's Bank of China will maintain current benchmark lending rates, placing the onus on fiscal measures to stimulate the economy. Although the current growth rate may lessen the immediate pressure for large-scale stimulus, Yue expects the implementation of existing support measures to accelerate, providing a boost to investment and economic activity in the upcoming quarters.
In recent weeks, Chinese authorities have ramped up fiscal support. This includes targeted interest rate cuts and mortgage subsidies introduced in late September. Additionally, earlier this month, 550 billion yuan of unused debt quota was allocated to alleviate local government financial pressures and encourage infrastructure spending.
Correction: This story has been revised to reflect that quarterly GDP growth was 4.5%.
