China's economy grew at a faster-than-expected pace in the third quarter, while consumption and industrial activity in September also surprised on the upside, suggesting the recent flurry of policy measures is helping to bolster a tentative recovery.
Rapidly weakening growth in the world's second-biggest economy since the second quarter prompted authorities to step up their support steps.
Today's batch of data indicates that the stimulus is starting to gain traction although a property crisis and other headwinds continue to pose risks to the outlook.
Gross domestic product (GDP) grew 4.9% in the three months from July to September compared to the year earlier, data released by the National Bureau of Statistics showed.
This was compared to analysts' expectations in a Reuters poll for a 4.4% increase but slower than the 6.3% expansion in the second quarter.
On a quarter-by-quarter basis, GDP grew 1.3% in the third quarter, accelerating from a revised 0.5% in the second quarter and above the forecast for growth of 1%.
"It seems that all of that stimulus is finally beginning to take effect, with a broad beat from growth, retail sales, industrial production and unemployment," said Matt Simpson, senior market analyst at City Index in Brisbane.
The government is walking a tight rope as it tries to restore economic equilibrium, with policymakers having to navigate a domestic property crisis, high youth unemployment, depressed private sector confidence, a slowdown in global growth and Sino-US tensions over trade, technology and geopolitics.
Beijing has in recent weeks unveiled a raft of measures, but its ability to spur growth has been hamstrung by fears over debt risks and a fragile yuan, which has been hit hard this year due to widening yield differentials as global interest rates remain elevated, led by the Federal Reserve's tightening campaign.
The recovery momentum suggests the government's full year 2023 growth target of around 5% is likely to be achieved.
"The improvement in Q3 economic data makes it less likely for the government to launch stimulus in Q4, as the growth target of 5% is set to be achieved," said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
"The focus of the government and the market will shift to the growth outlook for next year. The key issue is what growth target the government will set and how much fiscal easing will take place."
The statistics bureau said China would be able to hit the 2023 growth target if the fourth quarter growth tops 4.4%.
Industrial output in September grew a stronger than expected 4.5% from a year earlier, but the pace was unchanged from August, according to the separate data. Analysts had expected a 4.3% increase.
Growth of retail sales, a gauge of consumption, also beat expectations, rising 5.5% last month, and accelerating from a 4.6% increase in August. Analysts had expected retail sales to expand 4.9%.
Fixed asset investment grew 3.1% in the first nine months of 2023 from the same time a year earlier, versus expectations for a 3.2% rise. It expanded by 3.2% in the January-August period.
But a deepening downturn in the property sector, which accounts for nearly a quarter of economic output, poses a big challenge to policymakers as they seek to keep growth on track, analysts said.
The latest data underlined those worries. Property investment in the first nine months of 2023 fell by 9.1% from a year earlier, after slumping 8.8% in January-August.
Fixed-asset investment by private firms fell 0.6% in January-September year-on-year, highlighting weak private sector confidence.
The faltering property sector has hit some of the biggest developers in the country.
A grace period for a $15m coupon payment by Country Garden Holdings, China's biggest private property developer, expired earlier in the day, fuelling fears that it had defaulted on its offshore debt.
Efforts by policymakers to support big cities have failed to bolster confidence, underscoring the depth of the problems in the industry which slumped into a crisis two years ago.
The International Monetary Fund has downgraded its 2023 and 2024 growth forecasts for the Asian giant, saying the property slowdown could cause China's GDP to decline.
