China’s Economy Shows Signs of Recovery Amidst Policy Measures
Economic Growth Exceeds Expectations
China’s economy demonstrated a faster-than-anticipated growth in the third quarter, indicating that recent policy measures are effectively supporting a tentative recovery. Consumption and industrial activity in September also surpassed expectations, further bolstering the positive outlook. The government’s proactive steps to combat weakening growth seem to be gaining traction, although challenges such as a property crisis and other headwinds continue to pose risks to the economy.
GDP Growth and Stimulus Measures
China’s gross domestic product (GDP) expanded by 4.9% in July-September compared to the previous year, surpassing analysts’ predictions of a 4.4% increase. However, this growth rate was slower than the second quarter’s 6.3% expansion. On a quarter-by-quarter basis, GDP grew by 1.3% in Q3, accelerating from a revised 0.5% in Q2 and beating the forecasted 1.0% growth. The positive growth across various sectors, including retail sales, industrial production, and unemployment, indicates that the stimulus measures are beginning to take effect.
Tightrope Walk for the Government
The Chinese government faces a delicate balancing act as it strives to restore economic equilibrium. It must navigate challenges such as a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth, and ongoing trade tensions with the United States. Despite recent policy interventions, concerns over debt risks and a fragile yuan have hampered the government’s ability to spur growth. However, the better-than-expected China data has already had a positive impact on Asian stocks, as well as the yuan and trade-dependent currencies like the Australian and New Zealand dollars.
Government’s Growth Target
The momentum of China’s economic recovery suggests that the government’s target of achieving approximately 5.0% growth for the full year 2023 is likely to be met. As the focus shifts to the growth outlook for next year, questions arise regarding the growth target the government will set and the extent of fiscal easing that will take place. The statistics bureau stated that China could reach its 2023 growth target if fourth-quarter growth exceeds 4.4%.
Positive Indicators in Various Sectors
China’s industrial output in September grew by a stronger-than-expected 4.5% compared to the previous year. Additionally, retail sales, a key indicator of consumption, rose by 5.5% last month, surpassing analysts’ predictions. Fixed asset investment also increased by 3.1% in the first nine months of 2023 compared to the same period the previous year. However, concerns persist over the deepening downturn in the property sector, which accounts for a significant portion of China’s economic output.
Challenges in the Property Sector
The property sector’s ongoing decline poses a significant challenge to policymakers striving to maintain stable economic growth. Property investment in the first nine months of 2023 fell by 9.1% compared to the previous year, with fixed-asset investment by private firms experiencing a 0.6% decline. The struggling property sector has particularly affected major developers in the country. While individual developers’ financial turbulence may not derail the overall economy, policymakers continue to implement measures to support major cities and ease homebuying restrictions.
IMF Downgrades Growth Forecasts
The International Monetary Fund (IMF) recently downgraded its 2023 and 2024 growth forecasts for China, citing concerns over the property slowdown potentially leading to a decline in GDP. Despite these challenges, the Chinese government remains committed to sustaining economic growth through ongoing policy measures and fiscal easing.
