China’s GDP grew more than expected in Q3, much better than the previous quarter. Infrastructure and manufacturing were the main drivers.
Photo from CFP
By XIN Yuan
China’s GDP grew more than expected in Q3, up by 3.9 percent, considerably better than the previous quarter’s 0.4 percent. Infrastructure and manufacturing were the main drivers. Recovery in real estate and consumption proved to be slow.
Year-to-date infrastructure investment accelerated to 8.6 percent, up from 8.3 percent in August. Overall fixed asset investment increased by 5.9 percent in the first three quarters.
The government said in June that it would “increase support for major projects through policy-based and developmental financial instruments.” Since then 600 billion yuan (US$82.13 billion) has been raised and invested. In September, the State Council approved a 500-billion-yuan special bond quota and asked local governments to complete the issuance by the end of October.
Analysts expect Q4 infrastructure investment to increase by 10 percent.
Year-to-date investment in manufacturing expanded by 10.1 percent, 0.1 percentage points higher than in August. Investment in high-tech manufacturing and services increased by 23.4 percent and 13.4 percent respectively in the first three quarters, faster than that in overall manufacturing (10.1 percent) and service (3.9 percent).
Real estate investment has declined by 8 percent year-to-date.
The State Council decided in September that it would provide loans to schools, hospitals and small businesses to help them upgrade equipment. Their interest payments will be subsidized for two years if qualified. The same month, the People’s Bank of China said it would lend 200 billion yuan to banks and ask them to re-lend the money to businesses at interest rates no higher than 3.2 percent.
Analysts believe the policies demonstrate the government’s determination to shift from traditional manufacturing to high-tech, and that industrial investment will continue to be strong for the rest of the year.
The government lowered interest rates and offered new tax deductibles in September to stimulate demand. Economists believe supply-side measures are needed to help developers secure funding and finish building pre-sold units. The decline in real estate investment will continue, albeit at a slower pace, for the rest of the year.
Retail grew by 2.5 percent in September, down from August’s 5.4 percent. Restaurant revenue dropped 1.7 percent. Spending on home renovation and furniture was down by about 8 percent.
Covid will continue to inhibit consumption in Q4 but potentially to a lesser extent as pandemic control measures become more targeted. Car sales, however, which grew by 14.2 percent in September, will remain strong. To boost consumption, economists believe, the government will need to create more jobs, help small businesses, and narrow the income gap.
Industrial output (measured by industry value added) increased by 6.3 percent in September, up 2.1 percentage points from August. Automobile, heavy machinery and chemicals are the best performers, having grown 23.7 percent, 15.8 percent and 12.1 percent respectively. Purchasing Managers' Index, an indicator of whether manufacturers expect to expand, ticked up to 51.5 percent, after briefly dipping below 50 last month which implied contraction.
Manufacturers near Shanghai, hit hard by the pandemic in Q2, bounced back strongly. Industry value added in the Yangtze Delta region flipped positive and grew by 8.2 percent last quarter. Across the country, 23 provinces showed improvement in industrial activities in Q2. Overall capacity utilization is 75.6 percent nationwide.
Industrial output is expected to grow between 4 and 5 percent in Q4. Infrastructure building and strong automobile sales will be the main booster but the sluggish real estate sector, weak consumption and global economic uncertainties will dampen the growth.