Preface

The Chinese economy experienced a 4.8% growth in the third quarter, aligning with expectations amid a sluggish real estate sector. Despite this alignment with predictions, the prominent decline in fixed-asset investment signifies a challenging landscape. Observations suggest this downturn could present long-lasting impacts, especially given the backdrop of a substantial drop in property investment. The article further delves into the ramifications of these figures and forecasts associated economic trajectories.

Lazy bag

The GDP growth aligns with forecasts at 4.8%, yet the 'rare and alarming' drop in investment signals cautious future prospects.

Main Body

China's economy has grown by 4.8% in the third quarter compared to the same period last year, marking its slowest pace in a year. This growth, however, remains in line with analysts' predictions despite persisting challenges in the real estate sector. Unexpectedly, fixed-asset investment, which includes real estate among other sectors, contracted by 0.5% during the year's first nine months due to declining spending in infrastructure and manufacturing. Analysts previously forecasted a slight growth in this area.

Property investment continued its downward trend, marking a 13.9% decrease by September's end, worsening from a 12.9% decline through August. This investment shrinking raises alarms, as highlighted by Zhiwei Zhang of Pinpoint Asset Management, indicating potential pressure on GDP growth in the upcoming quarter.

The last contraction in fixed-asset investment occurred in 2020 amid the pandemic. The enduring weakness in real estate reflects a possible deeper restructuring, potentially preventing investment levels from ever rebounding, according to Bruce Pang of CUHK Business School.

A significant 6.5% increase in industrial production in September exceeded expectations. However, excluding real estate, fixed-asset investment rose by 3% in the first three quarters, down from 4.2% as of August. Eswar Prasad from Cornell University stresses that diminished confidence in economic prospects and governance explains the private sector's investment slowdown, increasing by just 2.1% through September compared to 3% as of August.

Retail sales grew by 3% in September, aligning with forecasts but indicating weakened support from consumer subsidy programs. Increasing home appliance sales slowed to 3.3% in September, down from 25.3% in the year's first three quarters. Further, the urban unemployment rate reached 5.2% in September.

Meanwhile, data from September points to continued robust export performance and fluctuating inflation rates, with core consumer prices rising without support from the broader headline figures. China's central bank kept its loan prime rates unchanged, as expected, through a continued six-month trend.

The ongoing policy meetings in Beijing aim to craft developmental and consumption-shifting strategies, as noted by Nomura's Ting Lu. Despite a focus on technological advancement, the enduring significance of traditional industries remains a pillar of economic strength. Tackling the real estate situation is projected as a key challenge through 2026-2030.

Key Insights Table