China's economic growth slowed in third quarter as energy shortages hit

SHANGHAI - - China's economic growth continued to decelerate in the third quarter, as gross domestic product came in at 4.9%, softened by the country's zero-tolerance COVID measures and energy shortages.

The year-on-year GDP growth rate, released on Monday by the National Bureau of Statistics for the three-month period through September, was below the median 5% expansion plan by 29 economists in a Nikkei poll released earlier this month.

The figure fell from 7.9% for the April to June quarter, weighed down by high commodity prices amid uncertainty caused by the China Evergrande Group's debt crisis, which is piling risk into the property and banking sectors.

The reading also illustrates weak overall activity, including in manufacturing and consumer spending. Retail sales of consumer goods, a barometer of household spending, went up in September by 4.4% compared to 2.5% in August, but was still well below double-digit growth that had continued to June.

Certain factors have persuaded economists to be cautious, at least for the near term. Rising coal prices effect the profitability of electricity providers, making them reluctant to generate power. As it prioritizes providing power to sectors that touch everyday life, the government is capping supplies to steel, cement and other energy-intensive industries. The result has been increased production and less inflation.

The statistics office announced last week that the consumer price index for manufactured goods in September rose from a year earlier, the strongest surge in the past 25 years, as far back as comparable data goes.

The government is forecasting China's economy to grow 6% for all of 2021, the Asian Development Bank projects 8% and the International Monetary Fund 8.1%.

The economy expanded 9.8% in the first nine months of the year, largely driven by trade as exports and imports jumped nearly 23% in yuan terms.

The software and information technology company growth of 19.3% led by software and information technology services also stoked the nine-month expansion.

The statistics office said GDP grew 0.2% in the last quarter from the third month, which U.K. s Capital Economics noted is the second lowest since China began revealing such data in 2010?

Growth lost more steam in September as official production dropped to 3.1% from 5.3% in August, while the industrial Purchasing Manager's Index fell to 49.6. It slipped below 50 which usually indicates that the economy is close to recession - for the first time since February 2020.

Meanwhile, officials have played down the country's power crunch and concerns over Evergrande crises.

The energy supply shortage is temporary and its impact on the economy is controllable, Fu Lingxuan told reporters on Monday citing recent measures to boost coal supply.

Zou Lan, head of the financial markets at the country's central bank, said Evergrande blindly expanded and diversified business, urging the property group to offload assets to raise funds to pay off debts.

The risk exposure of individual financial institutions is not big and the spillover effect for the financial sector is controllable, Zou said on Friday.

While fallout from the power shortages and concerns over the property market may have eased from September, their impact on China's broader economy should not be underestimated and will be a major downside risk in the fourth quarter, warned Shanghai-based Yue Su, principal economist at The EconomistEconomist Intelligence Unit.

The slowdown in the property sector will affect the activities of firms in areas such as construction contracting, building materials and home furnishing, said Su, adding that energy-intensive industries will face rising costs as well.

Hong Kong-based Tommy Wu of Oxford Economics told the BBC that policymakers are likely to take more steps to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies.

For a full list of economists, some critics disagree with China's official data.

Julian Evans-Pritchard of the U.K. - Based Capital Economics said the research firm's in-house measure, the China Activity Proxy, tracked a sharp 3.9% quarter-on-quarter expansion in the third quarter compared to a 3.0% expansion in the previous quarter.

For now the blow from the strong property downturn is being softened by very strong exports, said Evans-Pritchard. But over the next year, global demand is likely to drop as domestic consumption patterns normalize coming out of the pandemic and backlogs of orders are gradually cleared. The benchmark Shanghai Composite Index dropped as much as 0.92% in the morning before closing for the midday break down 0.35%.