BEIJING (Reuters) – China's economic growth has cooled to its weakest point since the global financial crisis in the third quarter, with regulators promising further political support as a long years campaign to address the risks of debt and war commercial with the United States began to bite.
PHOTO FILE: A helmet is seen at a construction site in Beijing, China, on July 20, 2017. REUTERS / Jason Lee
The Chinese authorities are trying to overcome numerous challenges, as fears of the trade war have triggered a staggering sell-off in domestic stock markets and a sharp decline in the value of the yuan against the dollar, raising concerns over growth prospects.
The economy grew 6.5% in the third quarter compared to a year earlier, slower than 6.7% in the second quarter, according to the National Bureau of Statistics. Analysts polled by Reuters expected the economy to expand by 6.6% in the July-September quarter.
The GDP reading was the weakest quarterly growth since the start of the year since the first quarter of 2009 at the height of the global financial crisis.
"The slowing trend is strengthening despite the Chinese authorities' commitment to encourage domestic investments to sustain the economy, domestic demand has been weaker than unexpectedly solid exports," said Kota Hirayama, senior economist in emerging markets at SMBC Nikko Securities in Tokyo.
After another large decline in Chinese stocks on Thursday, politicians tried to calm the markets, with central bank governor Yi Gang stating that recent stock market fluctuations are largely driven by investor sentiment and valuations. Equities are not in line with economic fundamentals.
Elderly regulators also commit to supporting private companies and businesses facing liquidity problems.
The Shanghai Composite Index .SSEC, which plummeted more than 1 percent in early trading, rebounded following the comments to be practically flat at the midday break.
Third-quarter growth was driven by weaker factory production from February 2016 to September, as car manufacturers cut output by more than 10% in a slowdown in sales.
"The figure of 6.5% is definitely below our consensus expectations.The weakness largely comes from the secondary industry, especially from production.We could revise our forecasts for Q4," Betty said. Wang, senior China economist at ANZ in Hong Kong.
On a quarterly basis, growth slowed to 1.6 percent from a 1.7 percent revised in the second quarter, in line with expectations.
It is important to underline that the sequential growth of the second quarter has been revised downwards compared to the previously reported 1.8%, suggesting that the economy reported less momentum in the second half than many analysts expected.
Recent economic data have highlighted the weakening of domestic demand with the weakness between production activities, infrastructure investments and consumer spending, as the multi-year repression of riskier loans and debt has increased the financing costs of society.
Before the data was published, economists expected China's full year growth to reach 6.6 percent this year – comfortably meeting the government's 6.5 percent target – and 6.3 percent next year.
But now some say that growth could slow even more dramatically next year.
"Looking ahead, the economic outlook is not optimistic with exports facing additional hurdles, as US tariffs are rising and demand from emerging countries is falling, GDP growth is expected to slow to 6 , 0-6.2% next year, "said Nie Wen, an analyst at Hwabao Trust Shanghai.
Chinese car makers, once high-sounding, now suffer from a weakening consumer spending, with annual sales at risk of falling for the first time in decades. Last week's data showed that car sales fell more in almost seven years in September.
GM (GM.N) sales decreased by 15% in the month and by Volkswagen (VOWG_p.DE) sales decreased 10.5%.
In recent months, Beijing and Washington have been slapping each other's tariffs, and bilateral trade talks to settle the dispute have stopped, triggering an internal share-run and putting pressure on China's already declining economy weakening of the currency.
Chinese exports unexpectedly kicked off a higher gear in September, largely as companies with loads loaded frontally to avoid stiffer duties in the United States. But the strongest sales pushed a record trade surplus with the United States that could ignite the already heated dispute between the two economic superpowers.
"We anticipate that the negative impact of commercial tension will appear more clearly in the data after the start of the new year," said Hirayama, "SMBC Nikko Securities".
Separate data on Friday show that China's production growth in China weakened to 5.8% in September compared to the previous year, while expectations were not met while investments in fixed assets expanded to 5.4% slightly higher than expected in the first nine months of the year.
Infrastructure investments increased 3.3% year-on-year for January-September, with a 4.2% growth in the first eight months of the year.
Retail sales increased by 9.2% in September compared to the previous year, returning back after several months of lackluster growth.
Faced with a cooling economy, stock market swings and a yuan currency under pressure, policymakers are shifting their priorities to reduce risks to growth by gradually loosening monetary and fiscal policy.
Last week, central China announced the cut of the fourth reserve requirement (RRR) this year, intensifying moves to reduce financing costs.
And, as analysts say, more support measures seem likely, as China begins to bear the brunt of the trade dispute with the United States.
"China is pulling all the levers to support domestic demand in the face of this commercial pressure.There is already a great acceleration in credit in progress and now the PBOC is announcing new steps".
"In the end, China will do what it takes to safeguard their economy and show the United States:" Hey, we do not need you ".
Reporting by Kevin Yao; additional reports by Stella Qiu in Beijing, Vatsal Srivastava in Singapore and Kaori Kaneko in Tokyo; Written by Elias Glenn; Assembly of Shri Navaratnam