PEKING (Reuters) – China's economic growth slowed more-than-expected in the third quarter, reaching its weakest level in nearly three decades, when the bloody US trade war hit factory production, prompting Beijing to provide new support.
During the sunrise in Qinhuangdao, Hebei Province, China, people enjoy the beach near a port. October 15, 2019. REUTERS / STRINGER
Gross domestic product (GDP) rose only 6.0% yoy, meaning a further loss to the economy from 6.2% growth in the second quarter.
China's trading partners and investors are watching attentively the health of the world's second-largest economy, while the trade war with the United States is fueling fears of a global recession.
Asian stocks stumbled after the data and reversed gains made in the UK and European Union on a long-awaited Brexit deal.
The positive Chinese data over the last few months have shown weaker domestic and foreign demand. However, most analysts say that there is limited scope for aggressive momentum in an economy that is already burdened with debt mountains after previous easing cycles that have pushed up real estate prices.
Never Wen, a Shanghai-based economist at Hwabao Trust, attributed the unexpectedly strong GDP growth mainly to the weakness of export-related industries, particularly the manufacturing sector.
"With exports unlikely to make a comeback and a possible slowdown in the real estate sector, downward pressure on China's economy is likely to continue and economic growth is expected to fall to 5.9% in the fourth quarter," Nie said.
"Authorities will ease their policies, but in a more restrained manner."
GDP growth in the third quarter was the slowest since the first quarter of 1992, the earliest quarterly data, and missed forecasts for growth of 6% , 1% in a Reuters survey among analysts. It was also at the lower end of the government's target range for the full year, from 6.0% to 6.5%.
In a press conference following the publication of GDP data, Mao Shengyong, spokesman for the Chinese Bureau of Statistics, announced Beijing's plans to accelerate the issuance of special local government bonds for 2020 this year to boost regional infrastructure investment.
Even the recent signs of a breakthrough in the protracted Beijing-Washington trade wars are unlikely to change the economic outlook.
US. President Donald Trump said last week that the two sides reached an agreement on the first phase of an agreement and suspended a tariff increase, but the officials warn that there is still a lot of work to be done.
A decline in Chinese exports accelerated in September, while imports contracted for a fifth consecutive month.
Domestic and global demand fluctuations have hit several key sectors of the economy, with weaknesses in freight transport, power generation in factories, employment and entertainment spending. In September, prices for factory gates fell to the fastest level in three years.
Mao from Statistics said there was enough room for change in monetary policy as rising consumer inflation was driven mainly by volatile food prices.
The International Monetary Fund warned that the US-China trade war would cut global growth in 2019 to the slowest pace since the 2008-2009 financial crisis, but said that production would recover if its duel tariffs were abolished would.
Beijing relied on a combination of fiscal stimulus and monetary easing to weather the current slowdown. These include trillion yuan tax cuts and municipal government bonds to finance infrastructure projects and efforts to boost lending by banks.
However, the economy has been sluggish and corporate confidence has tripped and local governments have faced increasing burdens as tax cuts have weighed on revenues and put a brake on investment.
PATCHES OF HOPE
Contrary to the disappointing overall GDP figure, China's industrial output rose 5.8% in September, better than expected, faster than the 17-year low recorded in August.
The increase was in line with signs of an increase in domestic orders, although overall demand remains at historically low levels. Analysts had expected industrial output to grow by 5.0% in September.
Industrial production in September was also in line with recent company surveys, which saw orders in food processing, textiles and electrical machinery, although growth continued to slow for other products such as cement, crude steel and cars.
Hwabao Trusts Never anticipated a sustained recovery in manufacturing given the slowing global demand, suggesting that a pick-up in overall economic growth is unlikely.
Fixed asset investment increased by 5.4% from January to September, meeting expectations. However, they dropped 5.5% in the first eight months.
Private sector fixed investment, which accounts for 60% of total investment in the country, increased by 4.7% between January and September, from 4.9% in the period from January to August.
Retail sales increased as expected last month by 7.8% yoy and more than 7.5% in August.
Another positive sign is that China's real estate investments remained buoyant in September, helped by a rise in new construction activity.
However, real estate transactions slowed during China's traditionally "golden September" high season for new home sales. This was hampered by official persistent speculation, which showed few signs of easing.
"As infrastructure investment is unlikely to recover strongly, preventing a sharp fall in real estate investment will be crucial to the authorities as they seek to stabilize next year's economic growth," said Zhang Yi, chief economist at Zhonghai Shengrong Capital Management in Beijing.
Reporting by Kevin Yao and Gabriel Crossley; Additional reporting by Yawen Chen; Writing by Stella Qiu and Ryan Woo; Edited by Sam Holmes