China's Q3 GDP Up 4.6%... Red Light for 5% Growth Target

Market Expectations Exceeded but Real Estate Slump Persists
"Growth Targets at Risk... Economic Stimulus Efforts Needed"
LPR Expected to Drop 0.2~0.25%P on 21st

China's Gross Domestic Product (GDP) grew by 4.6% year-on-year in the third quarter of this year, the National Bureau of Statistics of China announced on the 18th.

This slightly exceeded the 4.4% forecast by Chinese economic media Caixin and the market expectations of 4.5% compiled by Reuters and Bloomberg, respectively.

[Image source=Reuters Yonhap News]

However, there are concerns that the 'around 5%' economic growth target may not be met.

China's economy showed an upward trend with growth rates of 4.9% in Q3 last year, 5.2% in Q4, and 5.3% in Q1 this year, but slowed down to 4.7% in Q2. The third quarter saw a further decline, resulting in a 4.8% growth rate for the first three quarters combined. Additionally, the Q3 growth rate is the lowest since Q1 2023.

The National Bureau of Statistics stated, "During the third quarter, faced with a complex and severe external environment and new situations and problems in domestic economic operations, we strengthened macroeconomic regulation, expanded domestic demand, and introduced quantitative policies. In September, most production and demand indicators improved, and market expectations rose, accumulating positive factors that promote economic recovery."

Industrial production in Q3 increased by 5.8% year-on-year, services grew by 4.7%, and retail sales for the first three quarters rose by 3.3%, according to the National Bureau of Statistics. However, real estate remains sluggish, with real estate development investment declining by 10.1% from January to September this year.

Foreign media and experts believe additional stimulus measures are necessary to achieve the annual growth target. Reuters reported that the growth rate for 2025 could fall further to 4.5%.

Jiwei Zhang, President and Chief Economist of Pinpoint Asset Management, said, "If this trend continues until the end of the year, it will be difficult to achieve the official growth target of 5%. This may be why the authorities decided to change policy stances and promote growth at the Central Political Bureau meeting."

Eswar Prasad, Cornell University trade policy professor and former head of the IMF's China division, stated, "These GDP figures seriously jeopardize this year's growth target. Tremendous efforts in economic stimulus will be required to generate a sufficient growth turnaround to meet the target."

To counter the economic slowdown, China has introduced a series of stimulus measures since late September, including interest rate cuts and support for the real estate and stock markets. As a result, Goldman Sachs raised its GDP forecast for China this year from 4.7% to 4.9%.

On the same day, Pan Gongsheng, Governor of the People's Bank of China, said at the '2024 Financial Street Forum,' "Commercial banks announced reduced deposit rates this morning, and the Loan Prime Rate (LPR) is expected to decrease by 0.2 to 0.25 percentage points." The LPR, considered the de facto benchmark interest rate, is scheduled to be announced on the 21st. Major state-owned commercial banks in China simultaneously cut yuan deposit rates by 0.25 percentage points, indicating that lending rates will also be lowered.

Governor Pan also confirmed, "The reserve requirement ratio was cut by 0.5 percentage points on September 27, and depending on market liquidity conditions before the end of the year, an additional cut of 0.25 to 0.5 percentage points is expected." This reaffirmed the possibility of further reserve requirement ratio cuts within the year, mentioned at last month's joint press conference by the heads of three financial authorities.