China’s economy grew more than expected over the summer, although the property market remained weak, as the government and the banks it controls pumped money into new infrastructure and factories.
Data released on Wednesday showed that economic output increased from July through September compared to the previous three months. Industrial production of everything from chemicals to electric cars has boosted as the government builds more roads, sewer lines and other public works and as state-owned banks pump financing into building factories.
China’s economy, the world’s second largest, has faced difficulties over the past year and a half, with housing sales slowing and some of the largest real estate developers going bankrupt. The country’s debt burden, which has risen over the past 15 years, continues to negatively impact growth.
China’s National Bureau of Statistics said that in the third quarter – from July to September – GDP grew by 1.3 percent compared to the previous three months. In the second quarter, the economy grew 0.8 percent.
When projected for the full year, third-quarter data indicate that the Chinese economy was growing at about 5.3%, compared to an annual rate of just over 3% in the second quarter.
Consumer spending faltered in the spring, but appears to have stabilized in recent months. Retail sales rose 5.5 percent in September compared to the same month last year, accelerating from a pace of 4.6 percent in August.
“It looks tentative, but it is better than it was three months ago,” said Meg Reithmeyer, an assistant professor at Harvard Business School who specializes in the Chinese economy.
China’s economic performance so far this year has “laid a solid foundation” for continued growth, Sheng Liyun, deputy commissioner of the National Bureau of Statistics, said at a news conference. But he also warned that “the external environment has become more complex and dangerous while domestic demand is still insufficient and the basis for economic recovery and growth needs to be further strengthened.”
Consumers, concerned about the real estate crisis, were cautious about spending.
The real estate market remains at the heart of the economy’s deeper problems: two years of falling housing prices have left households feeling less prosperous, and less willing to spend money as a result. Weak demand for goods and services has left the economy teetering on the brink of contraction. Consumer prices were unchanged in September compared to the previous year, and wholesale prices charged by producers actually fell, according to government data released on Friday.
The decline in apartment prices led to a wave of bankruptcies among real estate developers and a decline in the construction sector, which was previously one of the largest industries in the country. The statistics office said on Wednesday that investments in real estate development fell by 9.1 percent in the first nine months of this year compared to the same period last year, even as investments in infrastructure and manufacturing capacity increased by 6.2 percent.
According to the Beike Research Institute in Tianjin, the average existing home prices in 100 Chinese cities have now fallen by 16% since August 2021.
The government tried to compensate for the slowdown.
Officials in Beijing have given local governments the green light to issue more bonds to finance infrastructure projects. The state-controlled banking system funnels loans to manufacturers so they can invest in more factories.
The goal was to create jobs, in the hope that people would then spend more money. Unemployment has been so high among young people this year, the government stopped publishing the data in August. But total urban unemployment fell in September to 5%, from 5.2% in August and 5.3% in July.
Lending has begun to help companies such as Dalian Pingshan Group, a large manufacturer of commercial heating and cooling systems in the city of Dalian. “In Pingshan, we get a lot of government support – financial support, policy support,” said Ji Zhijian, president of the group.
Chinese leader Xi Jinping has, over the past few years, cracked down on private sector companies in areas ranging from online platforms to at-home tutoring. But he has shown hints of decline in recent days as the economy continues to struggle, indicating on Friday, during a visit to Jiangxi province, that he wants to “promote the healthy development of the private economy.”
The epidemic casts a long shadow.
The headline GDP figure announced by the government on Wednesday, which compared this summer with the same period last year, showed growth of 4.9 per cent.
But a year ago, China’s economy was still reeling from “zero Covid” restrictions that included municipal lockdowns, mass quarantines and strict limits on inter-provincial travel.
“It’s not fair to compare the economy now to the economy a year ago, when many in China were stuck at home, and that comparison also tells you little about the direction the economy is headed now,” said Diana Chuileva, the bank’s chief economist. Enodo Economics, a London research firm focused on China.
China’s factories are still busy.
Even as China’s growth slows, its factories continue to produce a stream of goods. With domestic growth slowing and consumers at home wary of making large purchases, China is finding large markets abroad.
China is flooding the world with exported cars, including electric cars as well as gasoline-powered models.
A lot of goods go to Europe. Before the pandemic, shipping statistics show that China exported 2.7 containers of goods to Europe for every container it imported. In recent months, China has exported approximately four containers of goods for every container of imports.
But rising Chinese exports are generating political heat. European officials are concerned about the trade imbalance. The European Union has already launched an anti-subsidy investigation into China’s fast-growing electric vehicle exports, which could lead to tariffs next summer.
