BEIJING: China’s economic growth slowed more than expected in the third quarter, official data showed on Monday, as a crackdown on the property sector and a looming energy crisis began to bite.
After a swift coronavirus bounce back, recovery in the world’s second-biggest economy is losing steam, with gross domestic product expanding 4.9 per cent on-year, the National Bureau of Statistics (NBS) reported, citing an “unstable and uneven” domestic rebound.
The reading was just short of the 5 per cent tipped by analysts polled by AFP, and a sharp three percentage points off the April-June performance.
NBS spokesman Fu Linghui told reporters on Monday that the “current international environment uncertainties are mounting and the domestic economic recovery is still unstable and uneven”.
The economy grew only 0.2 per cent from the previous three months, the weakest since a historic contraction in the first quarter last year.
“Growth was dragged down by a slowdown in real estate, amplified recently by spillover from Evergrande’s travails,” Oxford Economics’ head of Asia economics Louis Kuijs said.
The struggles of property giant China Evergrande, which is drowning in more than $300 billion of debt, has battered sentiment among prospective buyers.
A government regulatory clampdown on the real estate sector, particularly the tightening of the lending rules, has dealt a severe blow to a crucial driver of economic growth, with a knock-on effect for other parts industries, including construction.
Investors are now keeping a worried eye on the developments in the Evergrande saga on concerns it could impact the wider economy.
However, China’s central bank at the weekend reassured that any financial sector fallout would be controllable, while governor Yi Gang told a seminar on Sunday that the authorities were watching for problems like default risks “due to mismanagement and breakneck expansion” at some firms.
In a sign of the ongoing weakness in the property market, home sales by value slumped 16.9 per cent on-year last month; following a 19.7 per cent fall in August, AFP calculations based on official data showed.
Kuijs also said that there was an “additional hit in September” from the electricity shortages and production cuts caused by strict implementation of climate and safety targets by the local governments.
The added damage, he said, was visible in weaker industrial output, which slowed to 3.1 per cent on-year.
“The weak third quarter GDP print reflected a combination of negative factors,” said Rajiv Biswas, Asia-Pacific chief economist at IHS Markit, including supply chain disruptions.
Investors’ sentiment collapse
Analysts at Fidelity International said that while property fears were the “epicentre of the shock”, economic drag was being exacerbated by the power crunch, regional lockdowns and a “zero Covid” strategy that hit the services sector and disposable income.
“The only surprise in China’s published GDP figures is that they have not come in lower,” said Paras Anand, Fidelity’s Asia-Pacific chief investment officer.
“Policy actions have been swift and have led to a collapse in the global investors’ sentiment,” he said, though adding tightening measures have likely peaked for now.
Kuijs believed that although electricity shortages and production cuts will be controlled in the fourth quarter, “the pending real estate downturn will continue to weigh substantially on growth”.
The GDP is still expected to grow around 8 per cent for the whole year, People’s Bank of China governor Yi added.
The weak figure has added to speculation that the officials will announce a cut in the amount of cash banks must keep in reserve, providing liquidity to the financial system, but they have to walk a fine line between supporting growth and keeping a lid on inflation.
There were bright spots; however, with retail sales rising 4.4 per cent, from 2.5 per cent in August, as virus containment measures were eased in the country, which has imposed local lockdowns over a few cases.
While the urban unemployment rate dipped slightly at 4.9 per cent, ING economist Iris Pang told AFP this year’s clampdown on private tutoring could also hit white-collar employment.
“There will be a lot of joblessness from these centres,” she warned, saying that the former staff might have to accept new jobs at lower wages, which would in turn hit spending.
Officials have expressed concern that unemployment could cause social unrest after it hit a five-year high in February last year.