Summary
- China’s Q3 GDP growth strengthens as expected, surpassing f’cast
- September sees better-than-anticipated industrial activity
- Exports momentum wanes, imports indicate sluggish demand
- Persistent COVID restrictions, property weakness major drags
China’s economy bounced back at a faster-than-expected clip in the third quarter, but a more robust rally in the longer term will be challenged by a prolonged property slump, continuous COVID-19 curbs, and global recession risks.
Helped by a batch of government measures, the world’s second-largest economy grew 3.9% in the third quarter compared to a year ago, official data showed on Monday, surpassing the 3.4% pace forecast in a Reuters survey and faster than the 0.4% expansion in the previous quarter.
However, domestic demand weakened towards the end of the quarter as an outbreak in coronavirus cases led to lockdowns, while export growth reduced and the key property sector further cooled, indicating a fraught recovery.
Further dimming the outlook, China seems set to push ahead with its ultra-strict COVID policies approved by the ruling Communist Party, which concluded its top leadership reshuffle on Sunday with Xi Jinping securing his third term at its helm.
The new line-up of China’s top ruling body has deepened fears among investors that President Xi will increase ideology-driven policies at the cost of economic growth.
“There is no prospect of China lifting its zero-COVID policy in the near future, and we don’t expect any meaningful relaxation before 2024,” said Julian Evans-Pritchard, senior China economist at Capital Economics.
“Recurring virus disruptions will therefore continue to weigh on in-person activity and further large-scale lockdowns can’t be ruled out.”
Hong Kong shares fell to 13-year lows and the onshore yuan plunged to its weakest level in 15 years on worries over the economy. Final consumption represented 2.1% of the 3.9% GDP growth, while net exports and capital formation, or investment, represented 1.1 and 0.8 percentage points, respectively.
In the nine months to September, China’s inflation-adjusted urban per capita consumption dropped 0.2 percentage points on the year. The data was originally due for release on Oct. 18 but was postponed amid the Communist Party Congress last week.
On a quarterly basis, GDP jumped 3.9% compared to a revised fall of 2.7% in the second quarter and an expected 3.5% jump.
The economy was boosted by manufacturing, with separate data showing industrial output in September increased 6.3% from a year ago, exceeding expectations for a 4.5% expansion and 4.2% in August.
Apart from the domestic risks, China’s economy will be pressured externally by the Ukraine conflict and a global slowdown due to interest rate rises to tame scorching inflation. A Reuters poll estimated China’s growth to slow to 3.2% this year, far below the official target of around 5.5%, marking one of the lousiest performances in almost fifty years.
Trade Pain
In signs of continuous strain, exports rose 5.7% from the previous year in September, topping expectations but coming in at the slowest pace since April. Imports grew a feeble 0.3%, missing estimates for 1.0% growth.
Retail sales rose 2.5%, failing to reach forecasts for a 3.3% increase and falling from August’s 5.4% pace, highlighting still fragile domestic demand. Specifically, catering sales slid 1.7% last month from an 8.4% growth in August on severe COVID measures.
As of October 17, 30 cities were applying various degrees of lockdown or controls, impacting around 225.1 million people, a rise from 196.9 million in the week before, according to Nomura. For September, China’s surveyed urban unemployment rate surged up to 5.5%, the highest since June, with the jobless rate for job applicants between the ages of 16 and 24 at 17.9%.
Month-on-month new homes prices also dropped for the second month in a row in September, indicating continued home buyer aversion as indebted developers scrambled to pool resources and achieve projects on time.
Buy Crypto Now
Iris Pang, chief China economist at ING, said:
“This set of data sends an important message that even COVID measures have become more flexible as it depends on the number of COVID cases, lockdowns are still a big uncertainty to the economy with the background of the real estate crisis. This uncertainty means the effectiveness of pro-growth policy would be undermined.”
Policymakers had introduced more than 50 economic support measures since late May, attempting to shore up the economy to reduce job pressures, even though they have underplayed the importance of reaching the growth target, which was set in March.
Hao Zhou, chief economist at Guotai Junan International, said:
“On the policy front, the overall policy will remain supportive. In our view, further policy impetus is required to buoy economic recovery, but additional interest rate cuts are unlikely during a period of aggressive global central bank rate hikes.”
