China reaction: GDP growth target likely in reach as Q3 figures beat marginally

The familiar growth profile returns

China’s GDP grew by 4.6% year-on-year in Q3 2024, slightly surpassing market expectations of 4.5%. The annual growth pace moderated from 4.7% in Q2, with cumulative growth reaching 4.8% for the first three quarters of 2024. The quarterly growth figure came in at 0.9% in Q3, falling short of expectations of 1.1%, despite being boosted by a downward revision of Q2’s growth to 0.5% from 0.7%. However, we believe that the credibility of the quarterly growth figures has been undermined by frequent and significant revisions, which do not align well with the reported annual growth trends.

GDP growth was supported by a recent recovery in investment and industrial production, which have driven economic development throughout the year. Despite some deceleration during the summer, both indicators showed improvement in September.

Fixed asset investment (FAI) grew by 3.4% year-on-year in September, the fastest pace in Q3, up from 2% in August. Investment in the manufacturing sector rose 9.7% in September—the strongest since March—likely boosted by the consumer trade-in programme and equipment upgrade initiatives introduced in August. Although infrastructure investment remained relatively soft, it improved to an annual 2.2% from 1.2% in August, likely driven by accelerated government bond issuance in August.

Consumer spending improves slightly, property prices weaken further

The expanded trade-in programme in August not only stimulated manufacturing investment but also helped boost retail sales. While headline retail sales remained subdued, it accelerated to 3.2% year-on-year in September from 2.1% in August. Sales of home appliances, eligible for the trade-in programme, surged 20.5% year-on-year in September—the best performance since early 2021 and evidence that some of the authorities’ stimulus programme is starting to bite. This strong demand for home appliances supported overall goods sales, which grew by 3.3% in September from 1.9% in August, outperforming catering sales for the first time since early 2023.

In contrast, property prices continued to weigh heavily on household consumption, deepening their decline in September. New home prices continued to fall by 0.7% on the month, 6.1% year-on-year, faster than the 5.7% decline in August, while existing home prices dropped by 0.9% on the month, taking the annual rate down to 9.0%, following an 8.6% decrease in August.

Policy efforts to stabilise the property market have intensified over the past month, including easing restrictions on housing purchases in top-tier cities, allowing local governments to use special bonds for inventory buyback schemes, and a series of easing measures from the People’s Bank of China in late September. However, the impact of these measures will take time to materialise – and face material implementation risks. In the interim, the negative wealth effect from the property downturn is likely to continue weighing on households with existing home prices now down around 15% on average from their peak. This suggests that the boost to retail sales from the trade-in programme may be short-lived.

Forward-looking policy is crucial amid persistent challenges

Since late September, China’s authorities have accelerated policy rollouts in an effort to meet growth targets. The recent monetary easing measures initially boosted sentiment in the equity market, and today’s launch of the PBoC’s stock buy-back re-lending facility has fuelled renewed momentum. However, delays and a lack of detail in fiscal policy may soon temper this optimism.

Today’s GDP data release may offer some reassurance to policymakers. With the recently announced stimulus measures starting to take effect. The annual rate of growth suggests that achieving the 2024 growth goal appears within reach. The focus should also remain on the longer-term challenges. The property market is still in distress, a meaningful recovery in the labour market has yet to materialise, external demand shows signs of turning downward, and domestic demand remains sluggish. This leaves China’s economic outlook uncertain, and it remains in urgent need of sustained policy support.