Growth in the Chinese economy slowed to 4.8% year-on-year in the third quarter of this year. While this is a solid pace, it is also the weakest result in a year. Domestic consumption and the property market remain the main weaknesses, while industry, on the other hand, has been a pleasant surprise.
Chinese economic developments
China is still struggling to maintain economic growth around the government's target of 5%, but the structure of performance is gradually changing. It is no longer driven by households or property developers, but mainly by industrial production and exports. However, weaker consumer demand and a slowdown in investment are increasing pressure on the government and the central bank to come up with further stimulus measures.
GDP growth between July and September reached 4.8% year-on-year. Quarter-on-quarter, the economy grew by 1.1%, above expectations but not enough to reverse the cooling trend.
Consumption remains weak
Retail sales rose 3% in September - less than economists expected. Households remain cautious and a large part of the population continues to save instead of spend. Consumer confidence has been hit particularly hard by the protracted crisis in the property market, where house prices are falling and many developers are facing debt problems.
The industry surprised
In contrast, industrial production brought positive news. It grew by a strong 6.5% year-on-year in September, driven mainly by export manufacturing, electronics and high-technology. This confirms that despite weak domestic demand, Chinese industry remains a key driver of the economy.
Investment and real estate hold back growth
Fixed capital investment fell by half a percent in the first nine months of the year. The real estate sector saw the most significant drop, with investment falling by almost 14%. This has also had a negative impact on employment and the revenues of regional governments, which have long depended on land sales and development activity.
Inflation and unemployment remain low
Consumer prices are just below zero, signalling very weak demand. The urban unemployment rate is around 5%, but the situation remains tense, especially among young people.
The implications for investors
China is still the world's second largest economy, and its health therefore has a major impact on global markets. For investors, this means several key things:
- Caution on the consumer sector. Weak domestic demand means risk for stocks of companies targeting Chinese consumers.
- Interesting opportunities in manufacturing and exports. Companies in high-tech industries, engineering or electronics can continue to grow despite the overall slowdown.
- Potential stimulus. If the government launches another wave of support measures, stock and commodity markets may benefit.
- Portfolio diversification. It pays to have Chinese assets only as a supplement, not the mainstay of a portfolio.
Summary
While China's economy is still in positive growth, its momentum is clearly fading. Consumers are cutting back, investment is falling and the property market remains in crisis. In contrast, industry and exports are showing resilience, making China a market of contrasts.
For investors, the conclusion is clear: Choose carefully, follow government and central bank signals, and focus on companies with real productive power.