(Bloomberg) — China said the economy is still on track to reach this year’s expansion target even after reporting the weakest growth pace in a year, with a boost from booming exports buffering a broad slowdown.
Gross domestic product expanded 4.8% from a year earlier in the three months through September, slightly exceeding economists’ forecast. The growth in the first three quarters laid a “solid foundation” for achieving the full-year growth goal of around 5%, the National Bureau of Statistics said in a Monday statement.
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The latest official snapshot of the economy marks the start of a high-stakes week for China, as top leaders gather in Beijing at the so-called fourth plenum to hash out development plans for the next five years.
And after tensions with the US erupted anew over trade, Treasury Secretary Scott Bessent is set to meet Chinese Vice Premier He Lifeng in Malaysia this week to prepare for talks between the two countries’ presidents later in October. US President Donald Trump on Sunday listed rare earths, fentanyl and soybeans as the US’s top issues.
Coupled with fresh fiscal support announced last week, the 5.2% growth rate for the first three quarters may reduce the urgency for further stimulus in the coming weeks. Ding Shuang, chief economist for greater China and north Asia at Standard Chartered Plc., said policymakers may delay a 10-basis-point rate cut the bank forecast for this year.
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“The data reduce the need for fresh stimulus in Q4, but policymakers will likely focus more on addressing the structural disconnect between supply and demand, especially as they deliberate the 15th Five-Year Plan during the ongoing Fourth Plenum.”
— Chang Shu and David Qu
Read the full note here.
Still, the Monday data gave policymakers plenty of reasons not to be complacent. Retail sales grew at the slowest pace since November, while fixed-asset investment made its first year-to-date contraction since 2020.
This weakness was offset by an unexpected uptick in industrial output, which expanded 6.5% in September and exceeded all economists’ estimates.
“The bottom line here is that the growth is slowing down, but with huge divergence,” said Ning Zhang, senior China economist at UBS Group AG, on Bloomberg TV.
China stocks continued their advance after the data was released, with the benchmark CSI 300 Index up as much as 1.3% following a broader risk-on mood in the region as Trump signaled easing tensions with China. A gauge of Chinese stocks in Hong Kong traded 2.5% higher as of midday break.
China has been riding a wave of momentum from record exports, powered by global demand for its manufactured goods that’s kept headline growth near the government’s target despite another trade war with the US. Still, vulnerabilities lurk throughout the world’s second-biggest economy, as deflation and excessive competition eat away at company profits while consumer demand struggles to recover from the housing market crash.
The rare drop in investment exemplified the weak sentiment pervading the economy. The contraction was mainly driven by the slumping real estate sector, while capital spending in infrastructure and manufacturing also slowed.
Infrastructure investment expanded only 1.1% in the first three quarters of this year from a year ago, the worst reading for the period since 2020. Manufacturing investment pulled back from the almost 10% expansion rate earlier this year to only 4%.
Partly to address that, the Ministry of Finance said Friday it has allowed provinces to tap 500 billion yuan ($70 billion) in unused bond quota within the debt ceiling to beef up fiscal health. The proceeds can be used to reduce off-balance-sheet borrowing, repay money owed to companies and for qualified provinces to expand investment, it announced at a quarterly briefing.
“Given the increased fiscal support, we believe there is potential for a rebound in infrastructure investment in the fourth quarter from the considerable decline in the July-September period,” said Jacqueline Rong, chief China economist at BNP Paribas SA.
Nominal GDP growth, which is not adjusted for changes in prices in the economy, slowed to 3.7% in the third quarter from a year ago, the worst reading since the end of 2022. That indicates economy-wide prices, measured by the GDP deflator, declined again for the 10th straight quarter, the longest deflation streak in recent history.
Looking forward, the government will “promote the implementation and effectiveness of more proactive and impactful macro policies, focus on stabilizing employment, enterprises, markets, and expectations, and steadily advance high-quality development to promote sustained and healthy economic growth,” the NBS said.
Although the full 15th five-year plan may not be approved and released until March, some of the decisions made this week should be announced when the plenum ends on Thursday. Governments and investors around the world are watching closely whether President Xi Jinping will put real policy weight behind plans to rebalance the economy toward domestic consumption, a shift that could mend years of trade imbalances that have hollowed out manufacturing around the world.
Top officials already signaled a greater focus on consumption after Trump’s reelection as president, ramping up spending in areas like education and employment. Until now, however, they’ve taken relatively measured steps and stopped short of setting a specific goal.
(Updates with more details and comments.)
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