China’s economy regains momentum. But real estate remains a drag
By Laura He, CNN
Hong Kong (CNN) — China’s economy has regained momentum in the third quarter, with gross domestic product (GDP) expanding by 4.9% from a year ago, the National Bureau of Statistics (NBS) said on Wednesday.
That was above the estimate of 4.4% growth from a Reuters poll of analysts, and puts Beijing’s annual growth target within reach. In the first nine months of 2023, the economy expanded by 5.2% from a year earlier.
“The growth target of [around] 5% is set to be achieved,” Zhiwei Zhang, president and chief economist for Pinpoint Asset Management in Hong Kong, said in a research note.
On a quarterly basis, the economy grew by 1.3% in the July-to-September period. That was faster than the 0.8% quarter-on-quarter growth recorded in the three months through June.
Consumer spending has emerged as one of the brightest spots in the July-to-September period, according to NBS data.
Still, the all-important real estate sector remains a drag. Property investment dropped 9.1% in the first nine months of 2023, compared to the same period last year, according to NBS.
The property market, which has accounted for as much as 30% of the economy, fell into crisis more than two years ago after a government-led clampdown on developers’ borrowing. The downturn is likely to drag on, posing a major threat to China’s growth prospects over the next three to five years.
The world’s second largest economy had a solid start to the year after emerging from three years of Covid restrictions. But the recovery fizzled out in the April to June months amid weak consumer spending, a persistent slump in real estate and muted global demand for its manufactured goods.
Beijing has ramped up its efforts to revive growth, including slashing interest rates, removing restrictions on home purchases and car buying, accelerating infrastructure projects and relaxing capital control to entice foreign investment.
“There are enough positive signs in the recent data to suggest that the economy has turned a corner,” analysts from Capital Economics said in a research report on Wednesday.
“This partly reflects the recent step-up in policy support, which looks set to continue over the coming months,” they added.
Stronger consumer spending
Other data released by NBS on Wednesday pointed to further signs of stabilization.
Consumer spending is on solid ground. Retail sales jumped 5.5% in September, the fastest pace of growth in four months.
Spending on festivities-related goods and services accelerated last month ahead of the extended Golden Week holiday, which spanned eight days to Oct. 6.
Sales of tobacco and alcohol surged 23% in September from a year prior, the highest increase among all spending segments. It was followed by catering services and sports and entertainment products, which recorded growth of 12.8% and 10.7% respectively.
Industrial output rose 4.5% in September from a year ago, matching growth in August.
Investment in fixed assets such as roads and airports grew 3.1% in the first nine months of the year. In the private sector, investment retreated by 0.6%, but state-sector investment surged 7.2%. In particular, infrastructure investment accelerated.
Unemployment surprisingly dropped.
The urban unemployment rate, which measures joblessness in cities and towns, fell to 5% in September from 5.2% in August. It marks the lowest level since November 2021.
But no information was provided on youth unemployment, which hit an all-time high of 21.3% in June before the release of the data was suspended.
“High youth joblessness notwithstanding, the resilience of the labour market probably helped to put a floor beneath consumer spending,” Capital Economics analysts said.
Economic recovery in ‘infancy’
Unsurprisingly, the property sector is still contracting.
New housing starts measured by floor area declined 23.4% year-on-year in September, following a 24.4% drop in the first eight months.
Fresh housing construction is now at its lowest level since 2005, suggesting that “developers remain cautious,” Capital Economics analysts said.
An official survey of housing prices will be released by the NBS on Thursday.
“The economic recovery is still in its infancy,” said Harry Murphy Cruise, an economist at Moody’s Analytics.
“And with the property market’s deterioration showing no signs of slowing, a black cloud lingers overhead. “
On the back of Wednesday’s data, Cruise expects the Chinese economy to expand by 5% in 2023, slightly higher from the firm’s previous estimate of 4.9%.
Earlier this month, the World Bank maintained its forecast that China’s GDP will grow 5.1% in 2023. But it cut its 2024 forecast from 4.8% to 4.4%, citing persistent difficulties such as elevated debt, property weakness and an aging population.
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