According to government data, the world's second largest economy saw a 4.9% increase in growth in the three months ending September. This was down from the 7.9% in the previous quarter. All three indicators of weakness were seen in factory output, retail sales, and investment in construction and other fixed assets.
Official curbs on energy consumption and shortages in processor chips and other components caused by the coronavirus epidemic have hampered manufacturing. The slowdown in construction, which is an industry that supports millions, is due to regulators forcing developers to reduce reliance on high-interest debt, which Chinese leaders fear is too dangerous.
Mo Ji, Fidelity International's director of research, stated that "Ripple Effects to the rest of world could be significant" because of weaker Chinese demand. A negative China growth shock, accompanied by financial stress, could lead to significant tightening of global financial conditions in developed markets like the U.S.
Comparing to the previous quarter, which is how other major economies are measured by, output barely grew during the July-September period. It grew by 0.2%, compared with the previous quarter. This was a decrease of 1.2% from the April-June period, and one the weakest quarters in the past decade.
China must support activity by increasing borrowing and spending more on public works. This slowdown will increase pressure on Beijing. Forecasters warn that even if this happens, activity is likely to decline before any policy changes are implemented.
Louis Kuijs, Oxford Economics, stated in a report that "Growth will slow further."
Chinese leaders want to lead the economy towards more sustainable growth, based on domestic consumption and less investment.
Since regulators required developers to reduce their debt, construction and housing sales have been slowing down.
Evergrande Group is one of the largest, and it's struggling to avoid defaulting $310 billion owed banks and bondholders. This has led to fears about other developers but economists believe the threat to global financial markets remains small.
Some provinces had to close down their factories in September to meet the official energy consumption and energy intensity goals. This is how they avoid exceeding their output per unit. Some warned that deliveries might be delayed, increasing the risk of shortages in smartphones and other consumer goods ahead of Christmas shopping season.
In September, factory output grew by 0.05% in comparison to August. This was a decrease from the 7.3% increase in the first nine months.
Although their outlook for China's growth has been reduced by private sector forecasters, they still anticipate 8% growth, which would be one of the strongest in the world. Beijing can keep its control intact as the official target of the ruling Communist Party is "more than 6 percent."
Rajiv Biswas, IHS Market's report writer, stated that the near-term outlook is "difficult". Real estate is also suffering from "fears that contagion will occur to other property developers."
This year's economic numbers are exaggerated compared to 2020 when factories and shops were shut down to combat the coronavirus.
Although output grew by 18.3% in the first quarter 2021, forecasters indicated that the rebound was already underway.
Retail spending growth declined to 4.4% in September compared to 16.4% in the previous nine months.
September saw a decrease in investment in real estate, factories and housing, which was 7.3% in the first nine months. September saw a rise of 0.17%.
According to Fidelity's Mo, the latest figures show that "the property sector fallsout will be an important drag on growth over the coming quarters." "Even substantial policy easing, which we still consider unlikely, will take time for the real economy to spread," said Fidelity's Mo.
According to the China Association of Automobile Manufacturers, auto sales in the largest market in the industry fell 16.5% in September compared to a year ago. According to the group, production was being disrupted due to shortages in processor chips.
The indicator of Chinese domestic demand, imports rose 17.6% in September compared to a year ago, but it was only half of the 33% growth the month before.