China will release third-quarter economic growth data on Wednesday, as Beijing aims for a target of about 5 percent this year.
Economists polled by Reuters expect gross domestic product to have grown by 4.4 percent in the third quarter. This means China remains on track to meet the 5 percent target after GDP growth of 4.5 percent in the first quarter and 6.3 percent in the second quarter.
Although the target is one of the country’s lowest in decades, Chinese officials in recent months have stepped up financial stabilization efforts in the real estate and banking sectors and bolstered support for the country’s stock market and renminbi.
Dozens of China-listed companies also announced or implemented share buyback plans on Tuesday, following a series of official measures to boost the struggling stock market.
These measures highlight that the world’s second-largest economy has failed to meet expectations for a post-pandemic recovery and that China’s economic planners are struggling to find growth drivers.
Next year’s GDP growth forecasts are cut to around 4.5 percent. Consumer and business confidence remains weak as the war between Israel and Hamas in the Middle East adds uncertainty and gloomy foreign demand for Chinese exports.
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Here are five things to look out for in tomorrow’s release:
Consumer spending is starting in the green
Retail sales, which have been consistently poor this year despite the end of Covid-19 restrictions, finally showed green shoots in August, rising 4.6 percent year-on-year.
However, Alicia García-Herrero, chief Asia-Pacific economist at Natixis, worries that housing market woes are still undermining consumer confidence and do not exaggerate recent improvements in this key measure of activity, particularly compared to a period of lockdowns in the year 2022.
“You can’t fall off the ground,” she said. “Any number that looks a little better [than the last] will be applauded, especially given what is going on in the world.”
This month’s eight-day Golden Week holiday likely helped maintain momentum – domestic tourism and revenues were near pre-pandemic levels – but that won’t show up in Wednesday’s data.
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Property issues
Poor home sales and developer defaults have become a persistent feature of a real estate market in deep crisis.
Beijing, keen to prevent another unsustainable cycle of credit-driven investment, has provided more support. This also includes the lifting of price restrictions on home purchases in some large cities.
On the one hand, there are signs that the stabilization measures are having the desired effect. Prices for new properties remained unchanged in August in 70 major cities compared to the previous month.
On the other hand, real estate investments fell by almost 9 percent in the first eight months of the year. And markets are worried about possible contagion from a debt crisis at Country Garden, China’s biggest private developer, which has warned it may not be able to meet all of its offshore payment obligations.
Export prospects are darkening
Weak international demand has become an acute pressure point for policymakers in Beijing, a marked change from most of the three years of shutdowns during the pandemic when China’s exports helped boost the economy.
Official data for July showed China’s exports fell 14.5 percent in U.S. dollar terms, the sharpest decline since the start of the pandemic. Although still in negative territory, the picture has improved: exports fell 6.2 percent year-on-year in September, compared with an 8.8 percent decline in August.
Data for July showed China’s exports plunged 14.5% in U.S. dollar terms, the sharpest decline since the start of the pandemic © Yen Duong/Bloomberg
Trinh Nguyen, senior emerging Asia economist at Natixis, noted that the war between Israel and Hamas has complicated China’s foreign trade prospects. China appears to be spared from fuel price hikes with near-zero inflation, but geopolitical tensions between Beijing and the West are heating up.
In an “increasingly divided world,” supply chains are already slowly diversifying away from sole reliance on China, meaning “things that would have been exported from China are increasingly being exported from elsewhere,” she said.
Questions about investing
Fixed investment, a key measure of capital spending in China, grew again in 2023, reaching just over 3 percent in the first eight months of the year.
This partly reflects the state’s desire to boost investment in manufacturing as it discourages China from over-reliance on real estate and financial speculation.
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Michael Pettis, a senior fellow at the think tank Carnegie Endowment for International Peace, worries that the government could steer investment into unproductive sectors as policymakers pursue their annual GDP growth target.
“All that could happen is that we go from one place of unproductive investment – real estate – to another place of unproductive investment. If you look at it systemically, the only reason for expanding production is to expand demand. We didn’t see that.”
Calls for economic stimulus and reforms
In the coming weeks, Beijing will host the Third Plenum of the Communist Party of China Central Committee, a key leadership meeting that has been used in the past to unveil economic reforms.
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As China’s growth has slowed, economists at home and abroad are calling for Beijing to boost domestic consumption by transferring cash and assets to households while improving the country’s social safety net, as well as more progressive taxation and new financing tools for local governments should introduce.
Before the third plenary session, however, Bert Hofman, a former Beijing-based country director for China at the World Bank, expects “optimizations rather than major measures.”
Overall, the stabilization and support measures announced in recent months are likely to be “sufficient” to reach the 5 percent GDP target, he said.
“Policymakers are quite comfortable with the direction the supply side of the economy is heading,” Hofman added.
Additional reporting by Cheng Leng in Hong Kong
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