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Abu Dhabi, UAEFriday 21 September 2018

China third-quarter growth slows but remains buoyant

Economic performance was solid and on track to comfortably beat the government's target of around 6.5 per cent for this year

A construction site near the Olympic Park in Beijing. Chinese economic growth slowed slightly in the third quarter. Andy Wong/AP
A construction site near the Olympic Park in Beijing. Chinese economic growth slowed slightly in the third quarter. Andy Wong/AP

China's economic growth slowed slightly in the third quarter as the government's efforts to rein in property market and debt risks tempered activity in the world's second-largest economy.

The economy grew 6.8 per cent in the third quarter from a year earlier, in line with the median estimate in a Reuters poll and down from 6.9 per cent in the second quarter, the national bureau of statistics said on Thursday.

In all, economic performance was solid and on track to comfortably beat the government's target of around 6.5 per cent for this year.

While the numbers met economist forecasts, they raise questions about more optimistic expectations flagged by the country's central bank governor this week. The People's Bank of China governor Zhou Xiaochuan on Sunday said GDP could grow 7 per cent in the second half of this year.

"The data show that some deleveraging is continuing and government reforms are working but growth is still being supported at a reasonable rate," said Kaori Yamato, a senior economist at the Mizuho Research Institute in Tokyo.

Analysts had penciled in a gradual GDP slowdown due to an expected softening in property investment and construction as more cities try to cool surging housing prices, while a government campaign against riskier lending pushes up borrowing costs.

In the property sector, growth in new construction slowed, while property sales dropped for the first time in more than two and half years in September.

"Unequivocally, the property boom has peaked," said Rosealea Yao, a property analyst at Gavekal Dragonomics.

"We have seen some big rebounds at the end of the first and second quarter, but given how fast the sale numbers are declining, we expect no big rebound this time."

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China's economy has surprised global financial markets and investors with robust growth so far this year, driven by a renaissance in long-ailing "smokestack" industries such as steel.

At the same time, there are concerns about the state's growing role in the economy: the acceleration in year-on-year state investment growth outstripped private investment growth in September.

Analysts and global economic bodies such as the International Monetary Fund warn Beijing is still too reliant on debt-fuelled stimulus to meet fixed growth targets.

In the opening speech of a key, twice-a-decade Communist Party Congress this week, thepresident Xi Jinping said China will deepen economic and financial reforms and further open its markets to foreign investors as it looks to move from high-speed to high-quality growth.

However, while expressing support for market reform and private firms, Mr Xi also called for stronger, bigger state firms.

While policymakers' efforts to curb property market speculation and cut debt are hurting growth in some parts of the world's second largest economy, activity has been supported by better-than-expected expansion in trade and bank lending.

Beijing has set a slightly more modest growth target of around 6.5 per cent for 2017, theoretically offering more room for reforms after the economy grew 6.7 per cent in 2016 - the weakest pace in 26 years.

GDP in the third quarter grew 1.7 per cent quarter-on-quarter, compared with growth of 1.8 per cent in April-June, which was revised up from initially reported 1.7 per cent growth.

Analysts had expected third quarter GDP would grow 1.7 per cent on a quarterly basis.

China's factory output grew 6.6 per cent in September from a year earlier, beating expectations, while fixed-asset investment expanded 7.5 per cent in the first nine months of the year, missing forecasts.

Retail sales rose 10.3 per cent in September from a year earlier, compared with analysts' expectations for a 10.2 per cent rise. Disposable income grew 7.5 per cent in the first nine months of the year, the fastest rate in two years.

Data last week showed China's import and export growth accelerated in September, suggesting the economy is still expanding at a healthy pace. China's banks also extended more loans than expected last month, buoyed by demand from home buyers and companies.

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