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Growth begins to slow gradually: GDP expands by 6.8 percent in third quarter

Growth of China’s GDP is only gradually shifting to lower levels. It recorded a slight drop to 6.8 percent in the third quarter, but remained at 6.9 percent year on year for the first nine months. This puts economic growth within the upper range of the government’s growth target of between 6.5 and 7 percent for the year. In the build-up to the 19th Party Congress, much focus was put on maintaining a stable economic environment and on ensuring that the CCP is in full control. This has been matched by increasing efforts to increase control over parts of the economy, including the financial system and the private sector economy, through regulatory tightening.

Real progress in reigning in excessive credit growth and tackling speculative investments in real estate however have only been limited. The government continues to walk a fine line between maintaining stable economic growth and cautious advances in the area of structural reform and deleveraging. Growth has most likely peaked in 2017, and a gradual shift to lower GDP growth can be anticipated over the coming quarters. 

Over the third quarter China’s economy benefited from a broad range of factors. The manufacturing component of GDP showed robust growth, expanding steadily by 7.1 percent in the third quarter. Targeted productions cuts in heavy industries aimed at dealing with overcapacities and environmental concerns did not pull-down growth. The industrial sector also benefited from strong demand in global export markets. Meanwhile construction slumped to 4 percent, the lowest level since 2000, pulling down growth in the secondary sector, which combines industry and construction, down to 6 percent.

The service sector again remained the fastest expanding part of the economy. Growth in the tertiary sector accelerated from 7.7 percent in the first six month to 8 percent in the third quarter. The dynamics of the tech sector are reflected in the newly established category by NBS: IT and software expanded by 29 percent, accelerating growth over the year. Despite the hype about the positive effects on growth, the sector only accounts for 3.5 percent of GDP.

The financial services sector showed signs of having bottomed out following a steady decline in growth since the stock market crash in 2015. Growth expanded by 5.6 percent in the third quarter. Recent regulatory tightening in the financial sector may however constrain growth again. Regional efforts to curb runaway housing prices took a toll on real estate related services. Growth crumbled to just 3.8 percent in the third quarter, down from 6.9 percent in the first half of the year.