China's economic growth slowed slightly as expected in the third quarter as the government's efforts to rein in the property market and debt risks tempered activity in the world's second-largest economy.
While China produced forecast-beating growth of 6.9 per cent in the first half, many economists and investors had expected momentum would start to fade as the government cracks down on riskier lending and speculation in the housing market.
China' central bank governor said earlier this week that the economy could grow 7 per cent in the second half of this year, while stressing that more needed to be done to reduce the risks from a rapid build-up in debt.
Key points
* Q3 GDP +6.8 pct y/y (f'cast +6.8 pct, prev +6.9 pct)
* Q3 GDP +1.7 pct q/q (f'cast +1.7 pct, prev +1.8 pct)
* Sept industrial output +6.6 pct y/y (f'cast +6.2 pct, Aug +6.0)
* Sept retail sales +10.3 pct y/y (f'cast +10.2 pct, Aug +10.1 pct)
* Jan-Sept fixed asset investment (FAI) +6.0 pct y/y (f'cast +7.7 pct, Jan-Aug +7.8 pct)
"The GDP data is in line with market expectations. It's worth pointing out that investment growth is considerably below expectations, as investment in industrial sectors such as manufacturing and mining dropped. But the real estate sector posted healthy gains, although the fall in sales area and prices shows the government's property curbs are starting to work," said Li Huiyong, economist at Shenwan Hongyuan Securities Co.
"Going forward, we expect the growth rate to be flat, and we're neither too pessimistic, nor optimistic. We expect 6.6-6.7 percent GDP growth in the fourth quarter, as production restrictions in some areas would have a relatively big impact on growth. Growth could come under pressure in the second half of next year. Liquidity would remain relatively tight, due to domestic financial regulation, and expected further tightening by the U.S. Federal Reserve. An expected slowdown in the property market would also inevitably have an impact on growth," Huiyong added.
"The Q3 GDP data matched market expectations, although it was below PBOC governor Zhou Xiaochuan's H2 forecast of 7 per cent. In the third quarter, funding costs rose to drag the private investment lower. The overall investment also fell and the prospects for investment are still not optimistic. In the property sector, although the real estate market recovered in third- and fourth-tier cities, the general policy contained the whole sector. In the same period, more environmental protection requirements were implemented, which would create more restrictions on investment," Nie Wen, economist at Hwabao Trust in Shanghai said.
"The Chinese yuan strengthened in the third quarter, and that has created some negative impact on exports," Wen added.
Market reaction
- The Australian dollar, seen as a proxy for China demand, was little changed.
- China's CSI300 stock index was slightly softer, down 0.2 per cent and SSE Composite was off 0.5 per cent.
- The onshore spot yuan weakened by around 90 pips to a low of 6.6367 per dollar. Its offshore counterpart followed the trend.
Menawhile, China's economy has surprised global financial markets and investors with stronger growth so far this year, driven by a renaissance in long-ailing "smokestack" industries such as steel, though many analysts and global watchdogs such as the International Monetary Fund (IMF) warn Beijing is still too reliant on debt-fuelled stimulus to meet fixed growth targets.
Strong government infrastructure spending and a frenzied housing market have fuelled a year-long construction boom, boosting demand for building materials from steel bars to copper pipes and imports of related industrial commodities such as iron ore.
China's voracious appetite for resources has helped trigger a reflationary pulse in global commodity prices and manufacturing profits worldwide, even as consumer prices remain stubbornly soft, vexing major central banks.
Exports have also rebounded after a multi-year slump, though the outlook remains clouded by fears of growing US trade protectionism and worries about how long a global electronics rally will last.
Many economists, however, believe the economy will soon lose steam, arguing that the impact of earlier stimulus measures will start to fade.
Rising borrowing costs are also expected to curb activity eventually as the government looks to contain risks from high debt levels, though many economists say Beijing has been too cautious about tackling massive corporate and local government debt out of concern that it could slow growth too much.
Property prices have come off the boil in China's biggest cities after waves of government cooling measures, but speculators have turned their attention to smaller cities and towns with fewer restrictions. Underlying demand for housing remains strong, however, and few analysts see a risk of a price crash.
China's government had set a more modest economic growth target of around 6.5 per cent this year, from a range of 6.5 to 7 per cent in 2016 and an actual 6.7 per cent, which was the slowest pace of expansion in 26 years.
China's steel output in September fell 3.7 per cent from the previous month, when output reached a record, as mills in the world's top producer curbed output because of the central government's crackdown on air pollution and overcapacity.
Crude steel production was at 71.83 million tonnes last month, up 5.3 per cent from a year ago, and taking the total for the first three quarters to 638.73 million tonnes, up 6.3 per cent from a year ago, data from the National Bureau of Statistics showed on Thursday.
The September output was the lowest since February.
The average daily steel output in September was 2.39 million tonnes, down 0.5 percent from 2.41 million tonnes in August, according to Reuters' calculations based on the official data.
Steel rebar futures in China have risen 40 percent this year, driven by government efforts to shut down inefficient and highly polluting steel plants such as induction furnaces since the end of last year.
Chinese mills have ramped up their steel output this year as the higher prices have fattened profit margins. However, output may continue to fall as steelmaking regions shut production lines to comply with government-mandated air pollution targets during the winter heating season.
