China's economy struggles due to a power crunch, property problems, and shaky economic growth
- China Q3 GDP increases by 4.9% y/y compared to the 5.2% forecast.
- Factory output growth in Sept was the slowest since March 2020, with the lowest level since September.
- Property development continues to accelerate declines.
- Policy measures to promote equality have a positive impact on growth.
China's economy experienced its lagging start to the year in the third quarter, hurt by power shortages and property stifles, highlighting the difficulty facing policymakers as they seek to stabilize a dwindling recovery while limiting the real estate sector.
Gross domestic product rose 4.9% from a year ago, missing forecasts, as Beijing's attempts to curb lending to the property sector compounded the fallout from electricity shortages which sent factory output back to levels last seen in early 2020, when heavy COVID-19 restrictions were in place.
The world's second-largest economy had shown a remarkable recovery from last year' s deadly flu, but the recovery has lost steam due to the blistering 18.3% growth recorded in the first quarter.
Under President Xi Jinping, a drive to make structural changes that address long-term risks and distortions, which has included crackdowns on the property industry and technology titans as well as carbon emission reductions has taken odours.
On account of the disappointing results, analysts at Barclays cut their fourth quarter projection by 1.2 percentage points to 3.5%. Analysts at ANZ cut their forecast for China's 2021 GDP growth to 8.0% from 8.3%.
Policymakers will now have to reconcile the effects of those structural changes with measures that will protect the economy and limit spread-risks from a debt crisis at China Evergrande Group (3333.HK).
"In response to the disappointing growth numbers we expect in the coming months, we believe policymakers will take more measures to stabilize growth, including ensuring adequate liquidity inthe interbank market, accelerating infrastructure development, and easing some aspects of overall credit and real estate policies," said Louis Kuijs, Oxford Economics' head of Asia economics.
In the third quarter, according to a Reuters poll of analysts, GDP would rise by 5.2%.
The yuan and most Asian stock markets were sluggish, fueled by investor worries about the world's economic recovery, due to the bleak results.
LVMH (LVH.PA), Kering (PRTP.AP) and Hermes (HRMS. PA) in Europe fell about 3% each, boosted by Xi's call for the expansion of a consumption tax.
China, which is still an avowed socialist nation, has pledged to reduce inequality after years of extraordinary growth, but may have to tread cautiously to avoid derailing ostensibly private sector-based economic engine.
In an essay published in the ruling Communist Party journal Qiushi last week, Xi urged for progress on a long-awaited property tax that may help close wealth gaps.
New construction starts in September slumped for a sixth month in retaliation, according to NBS data, the largest monthly decline since 2015, as cash-strapped developers slowed investment and halted projects following tighter borrowing limits. read more
Meanwhile, the industrial sector has been hit by coal shortage-induced power cuts, as well as environmental restrictions on heavy polluters like steel plants and floods over the summer.
Overall industrial output rose only 3.1% in September from a year earlier, marking the slowest rise since March 2020, during the first wave of the epidemic.
Aluminium production fell for the fifth consecutive month, and daily crude steel production surpassed the lowest level since 2018.
Retail sales increased 4.4%, faster than forecasts and the 2.5% increase in August, and nationwide joblessness rate fell from 5.1% to 4.9%, bucking the negative trend.
"Most of the (negative) factors are policy-driven... the economy is having a lot of pain points and these pain areas are not going away soon because policies are here to stay and therefore it will continue into 2022," said Iris Pang, ING's chief economist for Greater China.
The quarterly growth rate slid to 0.2% in July-September from a downwardly revised 1.2% increase in the second quarter.
Premier Li Keqiang said last week that China has all the tools it needs to tackle economic challenges despite a slowdown in growth, and that he had faith in achieving his full-year development goals.
Yi Gang, the chairman of People's Bank of China, said on Sunday that the economy is expected to grow 8% this year. read more
Despite the worries about high debt and property risks, the central bank is expected to remain cautious in monetary easing.
Analysts polled by Reuters believe the People's Bank of China will refrain from efforts to stimulate the economy by decreasing the amount of cash banks must keep in reserve until the first quarter of 2022.