China's economy expanded more quickly than anticipated in the third quarter, and consumer spending and industrial activity both exceeded expectations in September. These unexpectedly strong performance indicators show that the recent policy measures are supporting a tentative recovery.
Since the second quarter, the world's second-largest economy has experienced swiftly weakening growth, prompting authorities to increase their support measures. According to the data released on Wednesday, the stimulus is beginning to take hold, though the outlook is still at risk from the ongoing real estate crisis and other headwinds.
According to figures issued by the National Bureau of Statistics, the gross domestic product (GDP) increased by 4.9% from July to September of last year compared to the same period last year, which was faster than analysts' forecasts of a 4.4% increase but still below the 6.3% growth in the second quarter.
Quarter-by-quarter, GDP increased by 1.3% in the third quarter, above the 1.0% growth estimate and accelerating from the second quarter's revised 0.5% growth rate.
With a strong beat from growth, industrial production, retail sales, and unemployment, it appears that all of the stimulus is now starting to make an impact.
The government is balancing a number of difficult issues while trying to recover economic equilibrium, including a domestic real estate crisis, high youth joblessness, low private sector confidence, a downturn in global growth, and tensions between the United States and China over trade, geopolitics, and technology.
Beijing has announced a lot of measures in the past few weeks, but its ability to boost growth has been hindered by worries about debt risks and a weak yuan, which has been hit this year by expanding yield differentials as interest rates worldwide remain elevated, mainly due to the Federal Reserve's tightening campaign.
Following the better-than-anticipated China statistics, Asian markets recovered some of their losses, while the trade-sensitive Australian and New Zealand dollars all gained. The yuan reached a one-week high of $7.2905 per dollar.
On the way to meet government target
The government's goal of approximately 5.0% annual growth seems likely to be met given the strength of the recovery.
According to Zhiwei Zhang, the chief economist of Pinpoint Asset Management, the improvement in Q3 economic statistics reduces the probability that the government will introduce stimulus measures in Q4, as the 5% growth objective is set to be met.
Next year's economic outlook will come into focus for both the market and the government. What growth objective the government decides to establish and how much fiscal easing it plans to implement are the two main concerns.
If fourth-quarter growth exceeds 4.4%, according to the statistics bureau, China will be able to meet its growth target for 2023.
Based on separate figures, industrial output increased by a higher than anticipated 4.5% in September compared to last year, but at the same pace as August. Analysts had anticipated an increase of 4.3%.
A gauge of consumption, retail sales growth exceeded expectations as well, increasing 5.5% last month after increasing by 4.6% in August. Retail sales growth was predicted to be 4.9% by analysts.
Contrary to estimates, investments in fixed assets increased by 3.1% in the first nine months of 2023 from the same period a year ago. Between January and August, it grew by 3.2%.
Real estate downturn
But as authorities work to maintain growth, a deteriorating property market, which contributes close to 25% of GDP, poses a significant problem, according to economists.
The most recent data confirmed such concerns. Real estate investment dropped 9.1% in the first nine months of 2023 from a year earlier. Private sector confidence was low, as seen by a 0.6% decline in fixed asset investment by private companies between January and September year-on-year.
Some of the top developers in the nation have been impacted by the struggling real estate market.
Fears that China's largest private property developer, Country Garden Holdings (2007.HK), had defaulted on its offshore debt increased earlier in the day when a grace period for a $15 million coupon payment expired.
The failure of officials' attempts to boost confidence in big cities highlights the severity of the issues confronting the sector, which entered a crisis two years ago.
The International Monetary Fund cut its growth projections for China for 2023 and 2024 on Wednesday, citing the possibility of a fall in GDP due to a downturn in the real estate market.