China's Growth Accelerates to 4.5% Despite Shrinking Investment and Persistent Property Pressures

Key Facts

China's economic growth accelerated to 4.5% year-on-year in the third quarter, according to official data covered by Reuters in its reporting published on October 19, supported by strong exports despite continued weakness in consumer spending. The reading exceeded the 4.4% growth forecast in the agency's poll and was up from the second quarter's 4.3% pace. Real gross domestic product grew 4.6% in the first three quarters compared with the same period a year earlier, according to preliminary estimates from the National Bureau of Statistics. On a quarterly basis, GDP rose 1.2% from the previous quarter, the bureau said. Reuters attributed the acceleration in activity to strong exports that offset consumers' continued reluctance to spend, leaving the improvement in growth accompanied by a divergence between external demand and domestic consumption.

Retail sales grew 1.1% year-on-year in September, according to Reuters, improving from August's 0.4% increase. Sales also exceeded expectations for 0.6% growth, putting the monthly reading above both forecasts and the previous month's performance. On the production side, the National Bureau of Statistics reported that industrial value added at enterprises above a designated size rose 5.5% year-on-year in real terms in September. High-tech manufacturing grew 15.3% in the same month, outpacing overall industrial activity. From January to September, high-tech manufacturing value added rose 14.3% year-on-year, the bureau said, as the sector's output continued to expand over the cumulative period.

By contrast, fixed-asset investment, excluding rural households, fell 7.2% from January to September compared with the same period a year earlier, according to the National Bureau of Statistics. The decline was steeper in private fixed-asset investment, which contracted 10.4% over the same period. Manufacturing investment also fell 2.1%, despite growth in industrial production in the latest monthly reading. In the property sector, development investment fell 20.6% in the first three quarters, exceeding the pace of contraction in overall investment. The value of sales of newly built commercial properties fell 13.9% year-on-year over the same period, the bureau said. The contraction extended to funds available for investment at property developers, which fell 21.6%, alongside the decline in investment and sales in the sector.

In the stock market, China's main indexes pared early losses on the day the growth data were released, according to an update published by Investing.com during the October 19 session. The update showed the Shanghai Composite Index rising 0.4%, while the CSI 300 Index gained 0.1%. Chinese technology stock valuations had come under pressure from rising U.S. bond yields, according to an earlier report published by the website in September. That report said the U.S. Treasury yield had exceeded 5%, reaching its highest level since 2007. In its Global Financial Stability Report released in October, the International Monetary Fund warned of the broad impact of any correction in artificial intelligence stocks, saying, according to Reuters: "The repercussions of an AI correction could be global." The fund also warned that leverage could amplify the shock through forced selling and increased volatility.

On policy, China's support measures since late September have included cheaper credit for infrastructure and technology, according to Reuters. They have also included limited mortgage support and additional funds for local governments. In its October decision on benchmark lending rates, China left the one-year rate unchanged at 3.00%, the agency reported. The five-year benchmark rate remained at 3.50%, alongside support measures targeting specific sectors. In a stated effort to support domestic demand, National Development and Reform Commission official Zou Gang said authorities would increase the share of public services in fiscal spending, according to a report published by China's State Council on October 20. He added that authorities would strengthen broad-based policies that reach consumers directly as part of their next steps to support demand.