China's economy regains momentum. But real estate remains a drag.
China's economy picked up steam in the third quarter, growing by 4.9% over the same period last year, according to data released on Wednesday by the National Bureau of Statistics (NBS).
That puts Beijing's yearly growth objective within reach and was higher than the prediction of 4.4% growth from a Reuters poll of economists. The economy grew by 5.2% in the first nine months of 2023 compared to last year.
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management in Hong Kong, stated in a research note that "the growth target of [about] 5% is set to be achieved."
The economy expanded by 1.3% every quarter from July to September. That was quicker than the 0.8% quarterly increase in the three months leading up to June.
According to NBS statistics, consumer expenditure was one of the strongest areas during the July to September period.
However, the crucial real estate industry continues to be a drag. According to NBS, real estate investment decreased 9.1% in the first nine months of 2023 compared to the same period in 2018.
After a government-led crackdown on developers' borrowing, the real estate industry, responsible for up to 30% of the GDP, entered a crisis more than two years ago. The slowdown will probably continue, which poses a danger to China's chances for growth during the ensuing three to five years.
After leaving behind three years of Covid restrictions, the second-largest economy in the world enjoyed a strong start to the year. However, the recovery stalled from April to June due to sluggish consumer spending, a continuing real estate downturn, and subdued international demand for manufactured goods.
Beijing has increased its attempts to boost the economy by lowering interest rates, eliminating limits on purchasing homes and cars, speeding up infrastructure projects, and loosening capital controls to attract foreign investment.
In a research paper released on Wednesday, Capital Economics experts said there were "enough encouraging signs in the most recent data to suggest that the economy has turned a corner."
"This partly reflects the recent step-up in policy support, which looks set to continue over the coming months," they continued.
Additional NBS data that was made public on Wednesday indicated other stability indicators.
Consumer spending is firmly in place. The strongest growth rate in four months was seen in September when retail sales increased by 5.5%.
Before the prolonged Golden Week vacation, which lasted eight days and concluded on October 6, spending on holiday-related products and services increased last month.
The largest growth of all expenditure categories, tobacco and alcohol sales, increased 23% in September from last year. Catering services and sporting and entertainment goods came next, with growth rates of 12.8% and 10.7%, respectively.
Industrial production increased 4.5% from a year earlier in September, mirroring growth in August.
In the first nine months of the year, investment in fixed assets such as roads and airports increased by 3.1%. Investment fell by 0.6% in the private sector but increased by 7.2% in the public sector. Investment in infrastructure, in particular, increased.
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Unexpectedly, unemployment decreased.
Urban unemployment decreased from 5.2% in August to 5% in September, a measure of joblessness in cities and towns. Since November 2021, it has been at the lowest level ever.
However, no data were supplied for young unemployment, which peaked in June at 21.3% before the halted data release.
Despite the high teenage unemployment rate, Capital Economics researchers claimed that the labour market's stability "probably helped to put a floor beneath consumer spending."
'Infancy' of the economic recovery
It is not unexpected that the real estate industry is still shrinking.
Following a 24.4% reduction in the first eight months, new home starts, as measured by floor area, fell by 23.4% in September compared to last year.
The volume of new house buildings has dropped to its lowest point since 2005, signalling that "developers remain cautious," according to researchers from Capital Economics.
The NBS will publish a formal study on house prices on Thursday.
According to Moody's Analytics economist Harry Murphy Cruise, "the economic recovery is still in its infancy."
"And a black cloud lingers overhead with the property market's decline showing no signs of slowing down."
In light of the statistics released on Wednesday, Cruise revised its prediction of the Chinese economy's growth to 5% in 2023 from the prior 4.9%.
The World Bank has previously predicted that China's GDP will increase by 5.1% in 2023. However, it reduced its projection for 2024 from 4.8% to 4.4%, noting ongoing issues, including high debt, poor real estate, and an aging population.