China's Q3 growth slows to weakest pace in almost three decades

Employees producing down coats at a clothing factory in Nantong, China. China's economic growth has been hit by soft factory production amid a bruising Sino-US trade war. PHOTO: AGENCE FRANCE-PRESSE
Employees producing down coats at a clothing factory in Nantong, China. China's economic growth has been hit by soft factory production amid a bruising Sino-US trade war. PHOTO: AGENCE FRANCE-PRESSE

BEIJING • Hit by soft factory production amid a bruising Sino-US trade war and lacklustre demand at home, China's economic growth slowed more than expected to 6 per cent year on year in the third quarter, the weakest pace in almost three decades.

Yesterday's data marked a further loss of momentum for the economy from the second quarter's 6.2 per cent growth, likely raising expectations that Beijing needs to roll out more measures to ward off a sharper slowdown.

The third-quarter performance was also at the bottom end of the government's full-year growth target of 6 per cent to 6.5 per cent.

Analysts polled by Reuters had forecast gross domestic product to grow 6.1 per cent year on year in the July to September quarter.

China's trading partners and investors are closely watching the health of the world's second-largest economy as the trade war with the United States fuels fears about a global recession.

"There is a lot of uncertainty, still, regarding the US-China trade agreement," said Ms Ho Woei Chen, economist at UOB in Singapore. "I think the Dec 15 tariffs will have very important implications for Chinese growth in 2020. Beijing's approach has been rather measured and targeted, and they will continue to be so."

Downbeat data in recent months has highlighted weaker demand at home and abroad. Still, most analysts say the scope for aggressive stimulus is limited in an economy already saddled with piles of debt following previous easing cycles, which have sent housing prices sharply higher.

The outlook is unlikely to change for the better any time soon, even as tensions in the protracted trade war between Beijing and Washington have eased somewhat. US President Donald Trump said last week that the two sides had reached agreement on the first phase of a deal and suspended a tariff hike, but officials said much work still needed to be done.

A slide in China's exports accelerated last month, while imports contracted for a fifth straight month.

The drags on demand, both domestic and global, have hit several key parts of the economy, with weakness seen in freight shipments, factory power generation, employment and entertainment spending. Last month, auto sales posted their 15th straight month of decline, while factory gate prices fell at their fastest pace in three years.

The International Monetary Fund has warned that the US-China trade war will cut global growth this year to its slowest pace since the 2008-2009 financial crisis, but said output would rebound if their duelling tariffs were removed.

Beijing has relied on a combination of fiscal stimulus and monetary easing to weather the slowdown, including trillions of yuan in tax cuts and local government bonds to fund infrastructure projects and efforts to spur bank lending.

But the economy has been slow to respond, with business confidence shaky and local governments facing increasing strains as tax cuts hit revenues, weighing on investment.

In contrast to the disappointing headline GDP number, China's industrial output grew a better-than-expected 5.8 per cent last month, faster than the sub-5 per cent gains seen in August and July, data from the National Bureau of Statistic showed yesterday.

The uptick was in line with some tentative signs of increased domestic orders in the summer, though overall demand remains at historically weak levels. Analysts had expected industrial output to grow by 5 per cent last month, according to a Reuters poll.

Retail sales rose 7.8 per cent year on year last month, in line with analysts' expectations of 7.8 per cent growth. Sales in August grew 7.5 per cent.

Fixed asset investment grew 5.4 per cent from January to last month, matching what analysts had tipped, but slowing from the 5.5 per cent pace in the first eight months.

Private sector fixed-asset investment, accounting for 60 per cent of the country's total investment, grew 4.7 per cent in January to September, compared with 4.9 per cent in January to August.

REUTERS

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A version of this article appeared in the print edition of The Straits Times on October 19, 2019, with the headline China's Q3 growth slows to weakest pace in almost three decades. Subscribe