Chinese economy slows as energy crunch and property problems bite

·2 min read
China Evergrande property project
China Evergrande property project

China’s economic recovery faltered in the third quarter, expanding at its weakest pace in a year amid supply chain disruptions, power outages and property sector crises.

The world’s second-largest economy expanded by just 4.9pc compared with the same period last year, missing analysts’ estimates and down from 7.9pc in the second quarter.

While China had an impressive rebound from the pandemic, it has lost steam since a record 18.3pc year-on-year growth in the first quarter.

The sharp slowdown comes as Beijing struggles to deal with an escalating global energy crunch while also reining in a debt-fuelled property sector in the wake of the crisis at property developer Evergrande.

In a disappointing set of figures, GDP expanded just 0.2pc compared to the previous three months, when it grew 1.3pc.

Economists warned the slowdown is set to deepen in the final three months of 2021 as China is buffeted by power rationing and property market woes. Industrial production growth stuttered in September amid the power outages, falling from 5.3pc year-on-year in August to 3.1pc.

Craig Botham, China economist at Pantheon Macroeconomics, said the slowdown in the quarterly data “reflects the headwinds that arose” in recent months.

He said: “Widespread factory closures more than halved the growth rate of manufacturing, from 5.5pc to 2.4pc. Energy intensive industries particularly suffered.”

Beijing is rationing manufacturers’ power and ordering coal suppliers to boost output ahead of peak demand during the winter. Coal prices in China have soared to record highs as a cold snap deepens worries over the energy crisis.

Tao Wang, economist at UBS, warned that “power shortage and production cuts will likely continue to restrict fourth quarter growth, even though recent policy responses will mitigate the constraints”.

She added: “Covid-related restrictions could inhibit consumption recovery in the coming winter season as new cases emerge and in preparation for the holidays and Winter Olympics.”

Analysts at Barclays, meanwhile, cut their fourth quarter forecast by 1.2 percentage points, to 3.5pc.

Data came after China’s central bank governor Yi Gang insisted the economy is “doing well” on Sunday despite pressures on several fronts growing on Beijing.

He said: “Economic growth has slowed down a little bit, but the trajectory of economic recovery remains unchanged.”