By Kevin Yao

Slow Economic Growth in China

BEIJING (Reuters) – China's economy grew at the slowest pace since early 2023 in the third quarter. Although consumption and factory output figures exceeded forecasts last month, a struggling property sector remains a significant challenge for Beijing as it works to revitalize growth.

Authorities have ramped up policy stimulus since late September, but markets are still awaiting further details on the size of the package and a clearer roadmap for establishing long-term economic stability.

Official data indicated that the world's second-largest economy grew by 4.6% in July-September, slightly above the 4.5% forecast from a Reuters poll but below the 4.7% growth rate in the previous quarter.

"China's Q3 2024 data is not a turn-up for the books," said Bruce Pang, Chief Economist at JLL. "The performance aligns with market expectations, considering the weak domestic demand, ongoing struggles in the housing market, and slowing export growth."

Bruce also mentioned that the stimulus package announced at the end of September would require time and patience to effectively boost growth over the coming quarters.

Officials, during a press conference on Friday, asserted confidence that the economy could achieve the government's full-year growth target of approximately 5%, supported by additional policy measures and a potential cut in reserve requirements for banks.

"Based on our comprehensive assessment, we expect the economy in the fourth quarter to continue the stabilization and recovery trend seen in September. We are fully confident about achieving the full-year target," stated Sheng Laiyun, deputy head of China's statistics bureau.

Although policymakers found solace in exceeding forecasts for industrial output and retail sales for September, the persistent weakness in the property sector raised further calls for additional support measures.

"We should downplay the significance of better-than-expected key economic indicators in September, as the structural weaknesses in the property and household sectors remain largely unaddressed," said Betty Wang, an economist at Oxford Economics.

Wang added that the recently introduced stimulus measures could alleviate some risks to next year’s growth but are unlikely to reverse the underlying structural downturn.

A Reuters poll predicts that China's economy will likely expand by 4.8% in 2024, which is below Beijing's target, with growth potentially cooling to 4.5% in 2025.

Property Sector Challenges

On a quarterly basis, the economy saw a 0.9% expansion in Q3, compared to a revised 0.5% growth from April-June, and lower than the 1.0% forecast.

With 70% of Chinese household wealth tied up in real estate, a sector that previously represented a quarter of the economy, consumers are holding back on spending. This tepid consumption has negatively impacted various businesses, including the major Franco-Italian eyewear maker EssilorLuxottica, which reported missing third-quarter revenue expectations due to weak consumer demand in China.

Regrettably, there are limited signs of recovery in the property market, despite several policy support measures over the year. Data released on Friday showed that China's new home prices fell at their fastest pace since May 2015.

China’s crude steel output in September also declined for a fourth consecutive month, falling short of expectations for a rebound in demand for this construction commodity.

Additionally, the key export sector, which has been a bright spot in the economy, is beginning to exhibit signs of strain, with shipment growth seeing a significant slowdown last month.

Following the data release on Friday, markets experienced volatility but ultimately rallied, with the blue-chip CSI300 Index rising 2.5% and the Shanghai Composite increasing by 2.0% after the central bank announced two funding schemes to support the equity market.

Policy Support Under Scrutiny

China has been grappling with deflationary pressures since early last year, with some economists predicting that these strains will worsen.

"The GDP data confirmed that China faces excess supply and lack of demand. It's seen as possibly entering a phase of full-scale deflation," commented Toru Nishihama, Chief Economist at Dai-Ichi Life Research Institute in Tokyo.

Traditionally, policymakers have relied on infrastructure and manufacturing investments for growth but have now pledged to pivot towards stimulating consumer spending instead.

The central bank announced its most robust monetary support measures since the COVID-19 pandemic at the end of September to bolster both the property and stock markets. However, many investors remain uncertain, waiting for clear details regarding the overall size of the stimulus package and a definitive strategy to reignite growth more broadly.

Observers have consistently pointed out the pressing need for authorities to tackle long-term structural challenges, such as overcapacity, high debt levels, and an ageing population.

"China has begun to implement a host of stimulus measures since last month, but it’s unclear if those measures are sufficient," stated Nishihama.

"What is evident is that Chinese authorities appear to be missing the mark by not addressing the structural issues that persist."

> ($1 = 7.1208 Chinese yuan renminbi)