China’s economy expanded in the third quarter at its slowest pace since the start of last year, and today it appears distant from the 5 percent annual target. Beijing does not relent, busy in recent weeks approving stimulus measures one after another. The most positive data from the quarter’s final stretch hints at a push that offers a sliver of optimism, even though China has yet to resolve the troubles roiling its housing sector or the tepid pace of domestic consumption.
The 4.6 percent reading was the weakest in six quarters. It is one tenth below the previous quarter, leaving two periods below the target. Yet it is also one tenth above most analysts forecast. This was aided by unexpectedly strong September data in industrial production, rising from 4.5 to 5.4 percent; retail sales accelerating from 2.1 to 3.2 percent; and urban unemployment falling by two tenths to 5.1 percent. Appliance sales rose 21 percent year over year.
Experts debate whether the Chinese government will meet this year’s forecast track. In the past it undershot during the glory years to emphasize triumphalism. The only miss on the downside, more excusable than not, came during the pandemic. For Beijing it remains a priority to show that nothing, especially the economy, escapes its control. President Xi Jinping recently urged the party to push hard in the final quarter to reach the targets. The IMF projects 5 percent while the World Bank says Beijing will stay within two tenths of the goal. Goldman Sachs raised its projection after today’s data from 4.7 to 4.9 percent. Some analysts say the effects of already approved and forthcoming stimulus will be felt soon.
Heavy Public Spending
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Not many, but yes tepid, experts judge, who continue waiting for that elephantine public spending. The bulk has gone to the real estate sector, which once accounted for about a third of the economy and now drags on growth. Yesterday four trillion yuan, about 500 billion euros, was allocated to indebted real estate developers so that finished homes could be completed. China expanded a plan started in January to identify priority projects on a white list. More than 6,000 have been saved in ten months, and the latest approved tranche doubles prior investments. The central bank has cut rates on mortgages already issued and lowered the down payment for a second home from 25 to 15 percent.
There is no matter more urgent than reviving the housing market, the main culprit behind a languid national economy. It began cooling in 2019 and two years later fell into a deep hole. Housing accounts for about 70 percent of family wealth, and its turbulence has encouraged saving that thwarts the aim of turning domestic consumption into the new engine of growth. Housing Minister Ni Hong said the sector had begun to bottom out, yet many in China remain convinced there is still substantial room for further declines. Official September figures show the steepest declines in new homes in almost a decade.
The data released today have intensified calls for Beijing to approve the long awaited bazooka style stimulus. It is likely to wait until November after the US elections to gauge what lies ahead for the next four years.