China’s growth reprieve will be short-lived

In the works. China may be on track to hit its "around 5%" economic GDP target for this year, but repeating the feat will get harder for policymakers. Third quarter growth logged in at 4.6% year-on-year, and that pace will need sustaining if the People's Republic is to achieve medium-level developed economy status by 2035. Unless planners move their own goalposts, they'll have to contort themselves a lot more.

The print published on Friday for the July-September period was slightly better than expected, though a notch softer than the second quarter. Blame stubbornly weak consumption and plunging property investment. Data on Monday also showed exports slowed unexpectedly last month, dealing a blow to the economy's last major bright spot.

The People's Bank of China, Ministry of Finance and other departments have at least announced enough stimulus measures to convince economists this year's performance will be on-target. Authorities recently drew attention to some 2.3 trillion yuan ($323 billion) worth of special local government bonds left over from its annual quota, a higher amount than widely assumed. If that is fully deployed in the next two months, analysts at JPMorgan reckon China could add as much as 1.5 percentage points to quarter-on-quarter growth.

Still, five years ago Beijing adopted a formidable objective of doubling China's per capita GDP by 2035 from 2020 levels. That will require the world's second largest economy to grow at an annual average pace of at least 4.7% for the next decade, according to one influential Chinese think tank.

That will be a Herculean task. In August, the International Monetary Fund forecast real GDP growth will be 4.5% next year and gradually slow to 3.3% in 2029. Nothing in the stimulus announced so far will meaningfully shift that trajectory. If a spending package as reported by Caixin materialises, some 6 trillion yuan over three years, that might help. Otherwise Chinese officials who are already busy setting the next five year plan may need to recalibrate expectations.

Context News

China's economy expanded 4.6% in the July-September quarter from a year earlier, according to official data released on Oct. 18, slightly above the 4.5% figure expected in a Reuters poll of economists but down from the 4.7% pace in the previous quarter.