China’s economy grew more than expected in the summer, although the real estate market continued to weaken as the government and the banks it controls poured money into infrastructure and new factories.
Data released on Wednesday showed economic output increased from July to September compared with the previous three months. As the government built more roads, sewers, and other public works and state-owned banks financed factory construction, industrial production of everything from chemicals to electric cars strengthened.
Over the past year and a half, China’s economy, the world’s second largest, has been struggling. Home sales are down, and some major developers are facing bankruptcy. The country’s debt burden, which has increased over the past 15 years, continues to weigh on growth.
China’s National Bureau of Statistics said gross domestic product rose 1.3 percent in the third quarter – July to September – compared with the previous three months. However, in the second quarter, economic growth slowed to 0.5 percent.
When projected for the full year, third-quarter data showed China’s economy growing at about 5.3 percent, compared with an annualized rate of 2 percent 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, an acceleration from August’s 4.6 percent pace from the same month a year ago.
“It looks temporary, but better than three months ago,” said Meg Rithmyer, an associate professor at Harvard Business School who specializes in the Chinese economy.
China is turning to a familiar playbook to stimulate growth, mainly by continuing the high public spending it used during the pandemic. Local government lending increased by 4.2 percent in the first eight months of this year compared to the same period last year, but was up 59 percent compared to the first eight months of 2019.
Sheng Layun, deputy commissioner of the National Bureau of Statistics, told a news conference that China’s economic performance so far this year has “laid a solid foundation” for continued growth. But he warned that “with insufficient domestic demand, the external environment is becoming more complex and dire, and the foundation for economic recovery and growth needs to be further consolidated.”
Consumers, spooked by the asset crunch, are wary of spending.
The real estate market is at the heart of the economy’s deeper problems: A two-year slump in home prices has left households less prosperous and unwilling to spend money as a result. Weak demand for goods and services has pushed the economy to the brink of deflation. Consumer prices were unchanged from a year ago in September, and wholesale prices charged by manufacturers actually fell, according to government data released Friday.
Falling prices for apartments have triggered a wave of bankruptcies among real estate developers and depressed construction — formerly one of the country’s biggest industries. Investments in real estate development fell 9.1 percent in the first nine months of this year compared to the same period last year, while investments in infrastructure and manufacturing increased 6.2 percent each, the Bureau of Statistics said on Wednesday.
Average existing house prices in 100 Chinese cities have now fallen 16 percent since August 2021, according to the Beijing Research Institute in Tianjin.
The government tried to compensate for the recession.
Officials in Beijing have given local governments the green light to issue more bonds to pay for infrastructure projects. The state-controlled banking system provides loans to manufacturers so they can invest in more factories.
The goal is to create jobs with the hope that people will spend more money. Youth unemployment is at its highest this year, and the government stopped releasing the data in August. But overall urban unemployment fell to 5 percent in September, from 5.2 percent in August and 5.3 percent in July.
It is beginning to lend to companies such as Dalian Bingshan 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, the group’s chairman.
China’s top leader, Xi Jinping, has cracked down over the past several years on private sector companies in areas ranging from internet sites to home tutoring. But as the economy continues to struggle, he has shown signs of softening in recent days, saying during a visit to Jiangxi province on Friday that he wanted to “encourage healthy growth of the private economy”.
Epidemic casts a long shadow.
A key GDP number announced by the government on Wednesday showed growth of 4.9 percent this summer compared to the same period last year.
But a year ago, China’s economy was still struggling with “zero Covid” restrictions, including municipal lockdowns, mass quarantines and severe limits on travel between provinces.
“It’s not fair to compare it to the economy a year ago, when so many people in China were stuck in their homes, and that comparison tells you little about where the economy is going now,” said chief economist Diana Soileva. Enodo Economics is a London-based research firm with a focus on China.
China’s factories are still busy.
Even as China’s growth slows, its factories continue to produce goods. With domestic growth slowing and consumers at home wary of making big purchases, China is finding bigger markets overseas.
China is flooding the world with exported cars, electric cars and petrol-powered models.
Most of the goods go to Europe. Before the pandemic, shipping statistics show, China exported 2.7 containers of goods to Europe for every container it imported. In recent months, China has been exporting nearly four containers of goods for every container it imports.
But China’s export boom is creating political heat. European officials are concerned about trade imbalances. And the EU has already launched an anti-subsidy investigation into China’s fast-growing exports of electric cars, which could lead to tariffs next summer.