China’s economy showed signs of stabilization in the third quarter of 2023, as the government increased support and consumer spending picked up, while the property market remained a drag.
GDP Growth Beats Forecasts
According to the data released by the National Bureau of Statistics (NBS) on Wednesday, China’s gross domestic product (GDP) increased 4.9% in the July-September period from a year prior, surpassing the median forecast among economists of a 4.5% expansion. Compared to the second quarter, GDP grew 1.3%, better than expectations.
The growth target of 5% for the year is set to be achieved, said Zhiwei Zhang, chief economist at Pinpoint Asset Management. For next year, “the key issue is what growth target the government will set and how much fiscal easing will take place.”
Retail Sales Jump in September
One of the main drivers of the economic recovery was the rebound in consumer spending, which has been lagging behind other sectors due to the impact of the Covid-19 pandemic and lockdowns. Retail sales jumped 5.5% in September from a year earlier, well above forecasts and the highest reading since May. The jobless rate inched down to 5% at the end of September, the lowest since November 2021.
Consumer spending during this month’s Golden Week holiday period was also stronger than expected, as millions of people traveled across the country and boosted domestic tourism and consumption. According to the Ministry of Culture and Tourism, about 530 million trips were made during the eight-day holiday, generating a revenue of 390 billion yuan ($60 billion).
Industrial Output and Trade Surplus Remain Solid
Another pillar of the economic recovery was the resilience of the industrial sector, which benefited from strong external demand and government support. Industrial output rose 4.5% in September from a year earlier, above the median estimate of a 4.4% increase. Manufacturing, mining and electricity production all posted solid gains.
China’s trade surplus also remained large in September, as exports grew 14.6% year-on-year, while imports rose 17.6%. The trade surplus with the US widened to $42.8 billion, the highest since November 2021.
Property Sector and Deflation Risks Weigh on Outlook
However, not all sectors of the economy were performing well. The property sector remained a significant drag as home sales continued falling and a credit squeeze among developers widened — with the clock ticking for Country Garden Holdings Co. to avert its first public dollar bond default.
Property investment fell 9.1% in the January-to-September period, worse than projections. The slump in the property market could have spillover effects on other industries, such as construction, steel and cement.
Another challenge for the economy was the persistent deflation risks, as producer prices fell for the seventh consecutive month in September, dropping 2.1% year-on-year. Consumer prices also declined 0.3% from a year earlier, mainly due to lower food prices.
Government May Roll Out More Support Measures
To cope with these headwinds, the government may roll out more support measures in the coming months, such as issuing more sovereign bonds to spend on infrastructure, cutting interest rates and banks’ reserve requirement ratio, and boosting stock market confidence.
Steven Barnett, senior resident representative of the IMF in China, said although the fund has revised down its GDP growth forecast for China from 6% to 5.8% for 2023, it still expects China to be “the main driver of global growth” this year and next.
