China’s economic growth weakened in the third quarter as a property slowdown and energy shortages highlighted the country’s incomplete recovery from the coronavirus pandemic, posing a formidable challenge to President Xi Jinping’s policy agenda.
Gross domestic product grew 4.9 per cent in the third quarter, compared to the same period last year, according to data released by the National Bureau of Statistics on Monday. But compared to the second quarter this year growth was just 0.2 per cent.
The figures add to the pressure building on Xi as he enters the final year of his second term and pursues an ambitious “common prosperity” agenda to regulate high incomes and “encourage high-income groups and enterprises to return more to society”.
His priorities include an unprecedented crackdown on leverage in the property sector that could mark the beginning of the end of the country’s debt-fuelled economic model.
Policymakers are also grappling with an energy crisis that has led to power rationing across the country, pushed factory gate inflation to its highest level since 1995 and forced the government to increase coal production despite pledges to reduce carbon emissions made last year.
China’s economy far outperformed other developed countries in 2020 after new Covid cases slowed to a trickle by the middle of the year, driven by a construction boom, higher industrial activity and soaring exports.
But the latest data reveal a loss of momentum this year, with industrial production growing 3.1 per cent in September and edging just 0.1 per cent higher month-on-month. Retail sales, a gauge of consumer spending that has lagged behind the wider recovery in part because of strict anti-coronavirus travel restrictions, beat expectations to grow 4.4 per cent.
The country’s reliance on a credit-fuelled investment binge to counter the drag of the pandemic, combined with a series of bank reserve cuts in mid-2020, led to surging home prices in major cities.
But the government has moved aggressively to constrain mortgage lending and borrowing by property developers, casting a shadow over a sector that contributes more than a quarter of economic output.
Last month Evergrande, China’s second-largest developer by sales, missed a series of bond payments, leading to a collapse in investor demand for bonds issued by other developers.
Property investment has risen 8.8 per cent in 2021, while fixed asset investment was up 7.3 over the same period.
China’s central bank has indicated it is not inclined to help Evergrande, which is widely expected to undergo one of the country’s largest ever restructurings in the coming weeks and months.
Despite China’s broader economic slowdown, exports grew 28 per cent last month year-on-year in dollar terms, in a sign of resilience for the country’s trade sector despite the energy crisis and other supply chain challenges.
Additional reporting by Xinning Liu