China’s gross domestic product (GDP) grew a disappointing 4.9% in July-September from a year earlier, its slowest growth rate since the third quarter of 2020.
The 4.9% growth, which falls short of projections, was as a result of major infrastructural and logistics pitfalls that hit China from the end of the second quarter.
The economy was hit by power shortages, supply chain bottlenecks and major wobbles in the property market. There were also shocks from the government’s crackdown on the tech sector, which has wiped billions of dollars off China’s economy.
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Compounded by the recent Evergrande Group debt crisis, current shipping crisis that has impacted its export, and the aftereffect of covid-19 restrictions, China is struggling to keep its economy blistering.
“The domestic economic recovery is still unstable and uneven,” said National Bureau of Statistics (NBS) spokesperson Fu Linghui at a briefing in Beijing on Monday.
The GDP number is not bad compared with other economies emerging from covid-19 strains, but China’s economy had staged an impressive rebound from last year’s pandemic slump, buoyed by effective virus containment and hot overseas demand for the country’s manufactured goods. In the first quarter of the year, China’s economy was bubbling on 18.3% growth, setting a pace other countries can only envy.
“In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies,” said Louis Kuijs, head of Asia economics at Oxford Economics.
At 4.9%, China’s GDP is only 0.3% short of the 5.2% that Reuters Poll had predicted for the third quarter.
But Reuters also noted that the weak numbers, which have sent the yuan and Asian stocks lower, are largely as a result of the growing impact of Evergrande debt crisis, exacerbating investors’ concerns about world economic recovery.
Although an official of People’s Bank of China (PBOC) said on Friday that the spillover effect of Evergrande’s debt problems on the banking system were controllable and individual financial institutions’ risk exposures were not big, analysts believe that the Chinese authorities are trying to downplay the problems.
“The PBOC is downplaying the market impact of Evergrande’s default,” JPMorgan wrote, adding that it thinks Evegrande’s problems are not isolated but represent an industry-wide problem.
“The policymakers have the levers to contain the spillover risk; but if no policy action is taken, the risk of further deterioration should not be underestimated, which may lead to investment slowdown, weaker consumption, fiscal problems for local governments and broader financial sector pressure,” JPMorgan wrote.
The impact is gradually touching many sectors of the economy, posing new risks [such as Reuters’ highlight shows below] for China’s economic recovery.
New construction slumped for a sixth straight month in September, NBS data showed, the longest spate of monthly declines since 2015, as cash-strapped developers reined in investment and paused projects following tighter borrowing limits.
Meanwhile, the industrial sector has been hit by power rationing triggered by coal shortages, as well as environmental curbs on heavy polluters like steel plants and floods over the summer.
Overall industrial output rose just 3.1% in September from a year earlier, marking the slowest growth since March 2020, during the first wave of the pandemic.
Aluminium output declined for the fifth consecutive month and daily crude steel output hit the lowest level since 2018.
Bucking the negative trend, retail sales grew 4.4%, faster than forecasts and the 2.5% growth in August, and the surveyed nationwide jobless rate fell from 5.1% to 4.9%.
“Most of the (negative) factors are policy-driven… the economy is having a lot of pain points and these pain points are not going away soon because policies are here to stay, and therefore it will continue into 2022,” said Iris Pang, chief economist for Greater China at ING.
On a quarterly basis, growth eased to 0.2% in July-September from a downwardly revised 1.2% in the second quarter.
Premier Li Keqiang said last week that China has ample tools to cope with economic challenges despite slowing growth, and expressed confidence in hitting full-year development goals.
On Sunday, People’s Bank of China governor Yi Gang said the economy is expected to grow 8% this year.
“At present, China’s fiscal strength is continuously increasing, and there is still relatively big room for monetary policy,” said the NBS’s Fu.
Still, the central bank is expected to remain cautious about monetary easing due to worries about high debt and property risks.
Analysts polled by Reuters expect the People’s Bank of China to refrain from attempts to stimulate the economy by reducing the amount of cash banks must hold in reserve until the first quarter of 2022.