China's Q3 GDP growth slows to 1-year low

China's economic growth slowed to the weakest pace in a year in the third quarter as fragile domestic demand left it heavily reliant on manufacturing production and exports, stoking  concerns about deepening structural imbalances.

The economy's overreliance on exports at a time of mounting trade tensions with Washington is also raising questions over whether Beijing has the resolve to tackle critical policy challenges to foster longer term sustainable growth.

These concerns remain on the forefront of China's policy deliberations even as Monday's GDP figures showed forecast-matching growth of 4.8 per cent in the third quarter, keeping the economy on track to expand by roughly 5 per cent this year, potentially with the help of more stimulus.  

"With China on track to hit this year's growth target, we could see less policy urgency," said Lynn Song, chief economist, Greater China at ING.

"But weak confidence translating to soft consumption, investment, and a worsening property price downturn still need to be addressed."

Beijing may be using the headline resilience in growth as a show of strength in upcoming talks between its vice premier He Lifeng and Treasury Secretary Scott Bessent in Malaysia this week and a potential meeting between presidents Donald Trump and Xi Jinping in South Korea later.

The recent export data also highlights China's ability to diversify away from the U.S. market, the world's largest consumer economy. Its US export sales were down 27 per cent year-on-year last month, but shipments to the European Union, Southeast Asia and Africa grew by 14 per cent, 15.6 per cent and 56.4 per cent, respectively.

Still, the sluggish domestic market remains a drag for businesses with Monday's data showing retail sales slowing to a 10-month low.

The third-quarter gross domestic product growth lagged the  5.2 per cent pace in the second quarter but was in line with a Reuters poll forecast for a rise of 4.8 per cent.

The economy grew 5.2 per cent year-on-year in January-September, the National Bureau of Statistics data showed, suggesting growth is on track to hit the government's annual target of around 5 per cent.

On a quarterly basis, GDP grew 1.1 per cent in the third quarter, compared with a forecast 0.8 per cent increase and a revised 1.0 per cent gain in the previous quarter.    

Trade rift highlights weakness in lopsided economy

Renewed trade tensions with Washington have highlighted the vulnerabilities of China's lopsided economy, raising expectations that Chinese leaders may embrace painful changes to rebalance growth towards domestic consumption.

While China's export growth rebounded in September, much of the recent data show the world's second-largest economy has lost momentum, and deflationary pressures have persisted despite efforts to curb overcapacity and fierce competition.

Moreover, manufacturers' sales abroad to non-US countries come at the cost of profitability due to intense competition on price, making it hard to sustain unless trade tensions tone down.

Jeremy Fang, a sales officer at a Chinese aluminium products maker, says his firm lost 20 per cent of revenue as higher sales in Latin America, Africa, Southeast Asia, Turkey and the Middle East failed to fully offset an 80 per cent-90 per cent order plunge in the US.

Fang said he is learning Spanish to get ahead of his Chinese competitors rushing to non-US markets and is now travelling abroad twice more often than he did last year.

But that extra effort isn’t enough.

"You have to be ruthlessly competitive on price," Fang said. "If your price is $100 and the customer starts bargaining, it's better to drop $10-$20 and take the order. You can't hesitate."

Trump has threatened to raise tariffs on Chinese goods by an additional 100 per cent starting Nov 1. However, US officials have signalled that both countries are prepared to lower the temperature in their tariff spat.

China's five-year plan in focus

Chinese leaders will hold a closed-door meeting from Monday through to Thursday to discuss, among other things, the country's 15th five-year development plan, which is expected to prioritise high-tech manufacturing in the wake of the intensifying rivalry with the United States.

Investors are also looking to a Politburo meeting and the Central Economic Work Conference, expected in December, for clues on economic policy for next year.

The prolonged crisis in the property market, with latest figures showing investment in the sector down 13.9 per cent in the first three quarters year-on-year, has weighed heavily on growth and consumer confidence in China.

Authorities have unveiled modest stimulus measures this year, and while there is room for additional support, analysts are divided over whether policymakers will act this year.

"I don't think there will be additional consumption-focused stimulus. The focus of policy is long-term, including pension reform, which will improve consumption in the future, but will reduce it more immediately due to layoffs and people having less cash in hand," Dan Wang, China director at Eurasia Group.

Separate September data, which were also released on Monday, showed industrial output grew to a three-month high of 6.5 per cent year-on-year, accelerating from 5.2 per cent growth in August and beating a forecast of 5.0 per cent.

Retail sales rose 3.0 per cent in September, the slowest pace in 10 months, from 3.4 per cent in August and matching a forecast 3.0 per cent rise.

Fixed-asset investment shrank 0.5 per cent in January-September from a year earlier, reversing a 0.5 per cent rise in the first eight months for its first contraction since the pandemic.