China's economy grew at 6 per cent in the third quarter of 2019 compared with a year earlier, its slowest pace in about 30 years, delivering another blow to global growth and underlining many of the challenges facing President Xi Jinping.
The country's trade war with the US, slowing income growth and cooling manufacturing investment took a toll on the world's second-largest economy between July and September, according to the figures released by the National Bureau of Statistics on Friday.
The gross domestic product data came in below analysts' expectations of 6.1 per cent and revealed that China's growth was running at a level comparable with the late 1980s. However, the overall size of the economy is now far larger and, by many accounts, cannot continue expanding at double-digit rates as it did until this decade.
"I think 6 per cent is a stress test to the market," said Zhou Hao, a senior economist at Commerzbank. "On the one hand, China seems to be willing to accept somewhat lower growth and is sending a signal that 6 per cent is not an untouchable bottom line."
On the other hand, Mr Zhou said, the market is growing wary of slowing growth and policymakers' reluctance to use stronger stimulus measures.
Following the release of the GDP figures, the CSI 300 index of Shanghai and Shenzhen stocks was down 1.3 per cent. The renminbi was little changed.
China's gloomy GDP numbers follow a warning from the IMF this week that global growth will fall to its lowest level since the international financial crisis. The world economy was set to grow 3 per cent in 2019, 0.3 percentage points below its equivalent forecast six months ago, the IMF said.
The concerns affecting developed markets were also leading to less investment in China this year, analysts said.
"The major risk for global growth has been the cutting of capital expenditure due to instability from the trade tensions, Brexit and in the Middle East," said Zhu Chaoping, JPMorgan Asset Management's Shanghai-based global market strategist. "We have this in the US, the EU and now also in China."
Analysts had expected a rebound in China's fixed-asset investment but growth in construction activity slowed to 4.7 per cent year on year in the third quarter from 5.5 per cent in the second quarter, a significant decline.
The veracity of China's official data is often called into question and some experts believe that true growth is far slower. "We still believe the actual growth slowdown might be worse than the headline official numbers," Nomura's chief China economist Ting Lu said.
China's National Statistics Bureau admitted that external instability and slowing global growth had put the economy "under mounting downward pressure". But officials also sought to paint a rosier picture of conditions for the remaining three months of the year.
"The growth rate has slowed down but it is among the best in the world's major economies," said Mao Shengyong, spokesman at the statistics bureau. "The next stage of the world economy will probably continue to slow down. But from our own internal perspective, there are support factors. The trend of steady economic growth in the fourth quarter is guaranteed."
For Mr Xi, the trade war is at the top of a long list of worries that also include the political crisis in Hong Kong and an outbreak of swine fever that is driving up consumer prices.
The rapidly cooling economy is sparking growing debate over whether Mr Xi and the country's political system can shoulder the pressures associated with falling output. These include higher unemployment, distressed banks and waning prospects for many people in less developed regions that have yet to benefit from the country's growth.
"Unemployment is a very important indicator for officials because they are concerned about social stability," Mr Zhu at JPMorgan Asset Management said.
Trade is a problem but domestic demand is also very weak
Raymond Yeung, ANZ
In September, Chinese exports fell 3.2 per cent year on year in a sign that the impact of the trade dispute had deepened from earlier in the year. The manufacturers that feed China's lucrative export-oriented industry have also taken a hit from the trade tensions, with producer prices falling 1.2 per cent year on year in September, the largest drop since July 2017.
Beijing and Washington reached a limited deal last week, in what was the first tangible sign of progress in months.
But economists have pointed out that recent economic indicators also indicate waning demand from Chinese companies and consumers.
"Trade is a problem but domestic demand is also very weak," said Raymond Yeung, chief economist for greater China at ANZ. "The recent data clearly indicates industrial recession. The question is how will the government support growth without being aggressive on monetary easing."
The central bank is expected to continue to loosen monetary policy and added $28bn in liquidity to the interbank market this week. However, credit growth has consistently undershot the level that analysts think can buoy the economy during a slowdown. Instead, the government has sought to use tax cuts and a flood of new infrastructure projects to power through the slowdown.
The data for the first nine months of the year show that some of those efforts are falling short.
Manufacturing investment growth, for example, normally one of China's core growth generators, slowed to a 15-year low in the first three quarters of the year. Inflation-adjusted disposable income growth hit a record low during the same period, a worrying sign for policymakers attempting to shift the economy away from investment-driven growth and towards consumption-led development.
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