By Kevin Yao and Gabriel Crossley
BEIJING (Reuters) – China’s economy hit its slowest growth rate in a year in the third quarter, hit by power shortages and swings in the real estate sector, underscoring the challenge facing policymakers as ‘They seek to support a faltering recovery while controlling the real estate sector.
Gross domestic product rose 4.9% from a year ago, forecast missing, as Beijing’s attempts to limit lending to the real estate sector exacerbated the fallout from power shortages that dragged down production factories at levels last seen in early 2020, when heavy COVID-19 brakes were in place.
The world’s second-largest economy had rebounded impressively from last year’s pandemic crisis, but the recovery faltered amid the skyrocketing growth of 18.3% recorded in the first quarter.
Under President Xi Jinping, the drive to make structural changes that address long-term risks and distortions, which has involved crackdowns on real estate and tech giants, as well as emission reductions of carbon, has taken its toll.
Barclays analysts cut their fourth-quarter guidance 1.2 percentage points to 3.5% on disappointing data. ANZ analysts cut their forecast for China’s GDP growth in 2021 to 8.0% from 8.3%.
Policymakers will now need to balance the impact of these structural changes with measures that will protect the economy and tame the contagion risks of a debt crisis at lead developer China Evergrande Group.
â€œIn response to the dismal growth figures we expect in the coming months, we believe policymakers will take more steps to support growth, including ensuring abundant liquidity in the interbank market, accelerating infrastructure development and easing aspects of global credit and real estate policies, “said Louis Kuijs, head of Asian economics at Oxford Economics.
A Reuters analyst poll expected GDP to grow 5.2% in the third quarter.
The weak numbers pushed the yuan and most Asian stock markets down amid broader investor concerns about the global economic recovery.
In Europe, luxury stocks exposed to China, including LVMH, Kering and Hermes, fell around 3% each, also affected by Xi’s call for an extension of a consumption tax.
China, still a blatantly socialist nation, has pledged to reduce inequality after years of skyrocketing growth, but may need to be cautious to avoid derailing a private sector that has been a key engine of growth and employment, analysts said.
In an essay published last week in the ruling Communist Party’s newspaper Qiushi, Xi called for progress on a long-awaited property tax that could help narrow the wealth gap.
New construction starts in September fell for a sixth consecutive month, according to SNB data, the longest string of monthly declines since 2015, as cash-strapped developers curbed investments and suspended projects following tightening of borrowing limits.
Meanwhile, the industrial sector has been hit by power rationing triggered by coal shortages, as well as environmental restrictions on big polluters like steel plants and summer flooding.
Overall industrial production rose only 3.1% in September from the previous year, marking the slowest growth since March 2020, during the first wave of the pandemic.
Aluminum production fell for the fifth consecutive month, and daily crude steel production hit its lowest level since 2018.
Contrary to the negative trend, retail sales rose 4.4%, faster than forecast and growth of 2.5% in August, and the polled national unemployment rate fell from 5.1% to 4 , 9%.
“Most of the (negative) factors are driven by the policies … the economy is experiencing a lot of problems and these problems will not go away anytime soon as the policies are here to stay and therefore they will continue until 2022”, said Iris Pang, chief economist for Greater China at ING.
On a quarterly basis, growth slowed to 0.2% in July-September, after a downward revision of 1.2% in the second quarter.
Premier Li Keqiang said last week that China has many tools to deal with economic challenges despite slower growth, and expressed confidence in achieving development goals for the entire year.
People’s Bank of China Governor Yi Gang said on Sunday that the economy is expected to grow 8% this year.
Nonetheless, the central bank is expected to remain cautious about monetary easing amid concerns about elevated debt and real estate risks.
Analysts polled by Reuters expect the People’s Bank of China to refrain from trying to stimulate the economy by reducing the amount of liquidity banks must hold in reserve until the first quarter of 2022.
(Reporting by Kevin Yao and Gabriel Crossley; Editing by Sam Holmes and Carmel Crimmins)