BEIJING – China’s economy grew at a faster-than-expected clip in the third quarter, while consumption and industrial activity in September also surprised on the upside, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery.

Rapidly weakening growth in the world’s second-biggest economy since the second quarter prompted the authorities to roll out support steps over the past weeks, and Wednesday’s batch of data indicated the stimulus is starting to gain traction, although a property crisis and other headwinds pose risks to the outlook.

Gross domestic product (GDP) grew 4.9 per cent in July-September from the year earlier, data released by the National Bureau of Statistics showed, versus analysts’ expectations in a Reuters poll for a 4.4 per cent increase but slower than the 6.3 per cent expansion in the second quarter.

On a quarter-by-quarter basis, GDP grew 1.3 per cent in the third quarter, accelerating from a revised 0.5 per cent in the second quarter and above the forecast for growth of 1 per cent.

“It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment,” said Mr Matt Simpson, senior market analyst at City Index in Brisbane.

China is walking a tightrope as it tries to restore economic equilibrium, with policymakers having to navigate a domestic property crisis, depressed private sector confidence, a slowdown in global growth and US-China tensions.

Beijing has in recent weeks unveiled a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile renminbi, which has been hit hard in 2023 due to widening yield differentials as global interest rates remain elevated, led by the United States Federal Reserve’s tightening campaign.

Chinese stocks fell on Wednesday as the widened US chip export ban heightened investor concerns about geopolitical risks, even as the third-quarter economic data came in above expectations.

The broader market mood darkened after a blast at a Gaza hospital dimmed hopes for containing the conflict in the Middle East and complicated US President Joe Biden’s already fraught trip to the region.

Still, the recovery momentum suggests Beijing’s full year 2023 growth target of around 5 per cent is likely to be achieved. The statistics bureau said China would be able to hit the target if the fourth quarter growth tops 4.4 per cent.

“The improvement in third quarter economic data makes it less likely for the government to launch stimulus in the fourth quarter, as the growth target of 5 per cent is set to be achieved,” said Pinpoint Asset Management chief economist Zhang Zhiwei.

“The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place.”

Industrial output in September grew a stronger than expected 4.5 per cent from a year earlier, but the pace was unchanged from August, according to the data. Analysts had expected a 4.3 per cent increase.

Growth of retail sales, a gauge of consumption, also beat expectations, rising 5.5 per cent in September, and accelerating from a 4.6 per cent increase in August. Analysts had expected retail sales to expand 4.9 per cent.

Fixed asset investment grew 3.1 per cent in the first nine months of 2023 from the same period a year earlier, versus expectations for a 3.2 per cent rise. It expanded 3.2 per cent in the January-August period.

Property downturn

But a deepening downturn in the property sector, which accounts for nearly a quarter of economic output, poses a big challenge to policymakers as they seek to keep growth on track, analysts said.

The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1 per cent from a year earlier, after slumping 8.8 per cent in January-August.

The faltering sector has hit some of the biggest real estate firms in the country.

A grace period for a US$15 million coupon payment by Country Garden Holdings, China’s biggest private property developer, expired earlier on Wednesday, fuelling fears that it had defaulted on its offshore debt.

“In the grand scheme of things, I don’t think individual developers running into further financial turbulence will be enough to derail things. The problems of the developers have been known to the market for some while now,” said HSBC’s chief Asia economist and co-head of global research Frederic Neumann.

All the same, efforts by policymakers to support big cities have failed to bolster confidence, underscoring the depth of the problems in the industry which slumped into a crisis two years ago.

The International Monetary Fund on Wednesday downgraded its 2023 and 2024 growth forecasts for China, saying the property slowdown could cause China’s GDP to decline. REUTERS