China Q3 GDP growth exceeds expectations but risks loom

Last Monday, China delayed the release of the third-quarter growth figures -- along with a host of other economic indicators

China's economy rebounded at a faster-than-expected pace in the third quarter, but strict Covid curbs, a prolonged property slump and global recession risks are challenging Beijing's efforts to foster a robust revival over the next year.

Helped by government measures to revive activity, gross domestic product (GDP) in the world's second-biggest economy rose 3.9 per cent in the July-September quarter year-on-year, official data showed on Monday, above the 3.4 per cent pace forecast in a Reuters poll and quickening from the 0.4 per cent pace in the second quarter.

But weak demand at home and slowing exports point to a bumpy recovery as China looks set to continue with its existing zero-Covid strategy after the country wrapped up its twice-a-decade leadership reshuffle on Sunday, with Xi Jinping securing a third term as general secretary of the ruling Communist Party.

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Hong Kong stocks tumbled and Chinese stocks fell on Monday, with the yuan weakening, after the new membership line-up of China's top governing body heightened fears among investors that Xi will double down on ideology-driven policies at the cost of economic growth.

On a quarterly basis, GDP rose 3.9 per cent in the third quarter, versus a revised drop of 2.7 per cent in April-June and an expected 3.5 per cent rise.

The data was originally scheduled for release on Oct. 18 but was delayed amid the key Communist Party Congress last week.

"The Chinese economy has great resilience, potential and latitude," Xi told reporters on Sunday as he unveiled the top leadership team of the Communist Party for the next five years.

"Its strong fundamentals will not change, and it will remain on a positive trajectory over the long run."

The economy was buoyed by the manufacturing sector, with separate data showing industrial output in September rose 6.3 per cent from a year earlier, beating expectations for a 4.5 per cent gain and 4.2 per cent in August.

Despite the rebound, the economy faces challenges on multiple fronts at home and abroad. China's pandemic curbs and strife in its key property sector have exacerbated the external pressure from the Ukraine crisis and a global slowdown due to interest rate hikes to curb red-hot inflation.

A Reuters poll forecast China's growth to slow to 3.2 per cent in 2022, far below the official target of around 5.5 per cent, marking one of the worst performances in almost half a century.

Trade Pain

In signs of continued strain, exports grew 5.7 per cent from a year earlier in September, beating expectations but coming in at the slowest pace since April. Imports rose a feeble 0.3 per cent, undershooting estimates for 1.0 per cent growth.

Retail sales grew 2.5 per cent, missing forecasts for a 3.3 per cent increase and easing from August's 5.4 per cent pace, underlining still fragile domestic demand.

In particular, catering sales dropped 1.7 per cent in September from an 8.4 per cent gain in August on tighter Covid control measures.

The surveyed urban jobless rate nudged up to 5.5 per cent in September, the highest since June, with the unemployment rate for job seekers between the ages of 16 and 24 at 17.9 per cent.

More crucially, month-on-month new homes prices fell for the second straight month in September, reflecting the continued homebuyer aversion in the economically vital sector as indebted developers raced to pool resources and deliver projects on time.

"This set of data sends an important message that even Covid measures have become more flexible as it depends on the number of Covid cases, lockdowns are still a big uncertainty to the economy with the background of the real estate crisis," said Iris Pang, chief China economist at ING.

"This uncertainty means the effectiveness of pro-growth policy would be undermined."

Policymakers had rolled out more than 50 economic support measures since late May, seeking to bolster the economy to ease job pressures, even through they have played down the importance of hitting the growth target, which was set in March.

New bank lending in China nearly doubled in September from the previous month and far exceeded expectations, helped by central bank efforts to revive the economy.

"On the policy front, the overall policy will remain supportive," said Hao Zhou, chief economist at Guotai Junan International.

"In our view, further policy impetus is required to buoy economic recovery, but additional interest rate cuts are unlikely during a period of aggressive global central bank rate hikes."