China's economic slowdown is a risk to the world's second largest economy

A view shows cranes in front of the skyline of the central business district of Beijing in China.

President Xi Jinping's bold reforms are aimed at reducing the economy's dependency on real estate and debt, channelling more resources into high-tech manufacturing and creating a more equal and greener economy.

But slowing momentum in the world’s second largest economy poses the risks and underscores Xi's determination to implement his plans.

The growth in the third quarter of 2014, has slipped to an annual 4.9%, the slowest in a year. However, analysts are unlikely to waver much in their attempts to address what they see as long-term risks and distortions in the economy.

The slowdown is predominantly policy driven but Beijing is willing to make the trade-off, said Dan Wang, chief economist at Hang Seng Bank China New construction has slumped amid efforts to cool the real estate sector where China Evergrande Group's debt crisis raised concerns about broader financial contagion.

Industrial production was reduced by the energy intensity targets as well as power scrapping amid coal shortages exacerbated by mine closures and safety inspections. China's COVID - 19 policy was equally negative on consumption.

Such government policies could have impacted quarterly growth by 0.7 percentage points, said Nie Wen, an economist from Hwabao Trust in Shanghai.

In December last year, Chinese leaders committed to use the window created by the economic recovery for structural reforms. Setting a more flexible and modest growth target of above 6% for this year also gave them plenty of room to move forward, with many analysts expecting to see around 8% growth in 2021 despite the slowdown.

Amid Xi's push to create what he calls common prosperity regulatory crackdowns targeting tech, education and entertainment have disrupted the vast online sector and devastated the for-profit tutoring industry, raising questions about the role of private sector in China's economy.

Beijing is projecting confidence and has not signalled any major policy changes to address the slowdown. Premier Li Keqiang said last week that China has ample tools to deal with economic challenges.

Policymakers, fearful that a property bubble could undermine the country's long ascent, are likely to continue to curb rampant borrowing and speculation, but could soften some tactics, policy sources and analysts told Reuters.

It would take much more damage to financial markets and the real economy before Beijing would be willing to unwind some of these curbs, said analysts at Nomura in a memo.

Is there more fiscal relaxation of real estate measures in cities facing more fiscal pressure?

One reassuring factor for Beijing may be that employment figures have continued to improve even as house building and factory activity slow, with the nationwide urban jobless rate falling to 4.9% in September, the lowest since 2018?

Analysts warn, however that China's employment figures do not accurately capture the numbers of jobless rural migrant workers or those who have given up looking for jobs.

A healthy looking labour market helps the government tolerate the economic slowdown, although some workers may be underemployed as factories suspend production, said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

In another bright spot, exports have beaten expectations for months as domestic demand for Chinese goods helps to provide a buffer against global woes.

Net exports contributed nearly 20% of China's overall growth in the third quarter, more than double that of the previous three months.

China has been lucky this year as exports continued to exceed expectations and support growth. How long it can be sustained is hard to forecast, Zhang said.

Will the need for a relaxation in COVID-19 controls to help boost consumption happen any time soon? After four local cases were reported in recent days in Shimao, a city in northern China, vehicles with official clearance were banned from leaving and cinemas and gyms were closed.

While an industry body said power woes could ease in the fourth quarter after a raft of measures to boost coal supplies including calls for closed mines to resume production, analysts warn that the crunch could last until next year.