China Economy

China reports economic growth below expectations — its worst pace since the financial crisis

Key Points
  • China said on Friday its economic growth slowed to 6.5 percent year-over-year in the third quarter of 2018, missing expectations. 
  • Beijing's official GDP figures are closely watched as an indicator of the health of the world's second-largest economy, but many outside experts have long expressed skepticism about the veracity of China's reports.
Workers sewing shoes at a factory in Qingdao in China's eastern Shandong province.
AFP | Getty Images

China's economic growth slowed more than expected to the weakest pace since the first quarter of 2009 as the country's trade war with the U.S. puts pressure on growth, according to official data released on Friday.

The world's second-largest economy said its economy grew 6.5 percent year-over-year in the third quarter of 2018. That missed expectations for a 6.6 percent growth, according to analysts polled by Reuters. The latest GDP data also came in lower than the 6.7 percent year-over-year expansion in the previous quarter.

Despite the GDP miss, China's stock markets recovered from earlier losses to trade in positive territories. The Shanghai composite was about 0.37 percent higher, and the Shenzhen composite inched up 0.325 percent.

On a quarter-on-quarter basis, China's economy grew 1.6 percent, according to the National Bureau of Statistics. That met the estimates by economists in a Reuters poll.

Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, said the slowdown in China's growth is not surprising.

"China cannot be growing at 6.6-6.7 percent every quarter because of the fact that they're starting to deleverage and also for the fact that you've got a trade dispute going on with the Americans," he told CNBC's "Street Signs" after the GDP data release.

In addition to the latest GDP figures, China also released a slew of other economic data:

  • Industrial production for September grew 5.8 percent compared to a year ago, missing expectations of a 6 percent expansion by Reuters.
  • Retail sales for September jumped 9.2 percent compared to the same month last year, beating Reuters' estimates of a 9 percent increase.
  • Fixed asset investment for January-to-September grew 5.4 percent year-over-year, beating Reuters' forecast of a 5.3 percent growth.

Although Beijing's official GDP figures are tracked as an indicator of the health of the world's second-largest economy, many outside experts have long expressed skepticism about the veracity of China's reports.

Nevertheless, any signals about growth are closely watched amid China's trade fight with the U.S. as the two economic superpowers slap tit-for-tat tariffs on each other's goods.

Is China's growth story over?
Is China's growth story over?

"It's very clear that China's economy is on a very soft footing at this moment and in the meantime, we do see there are a lot of bearish sentiments towards China's economic outlook, as well as the financial market outlook," said Hao Zhou, senior emerging market economist for Asia at Commerzbank, before the release of China's GDP data. His third-quarter GDP growth forecast for China was 6.6 percent.

For its second quarter, China announced earlier this year that it had posted GDP growth of 6.7 percent from a year ago, slightly lower than 6.8 percent in the first quarter of 2018 as Beijing cracked down on risky credit amid the escalating trade tensions.

Indeed, financial deleveraging has slowed this year versus the last two years, Zhou told CNBC's "The Rundown."

However, the People's Bank of China has already cut banks' reserve requirements four times this year. Those moves have been described as an attempt to prop up liquidity and growth amid the trade dispute with Washington.

China has sought to implement relatively tight monetary policy to force financial deleveraging and cut debt. However, easier monetary conditions — achieved through means like cutting banks' reserve requirements — are seen as a tool to support growth.

China's official growth target this year is around 6.5 percent. And the country is still on track to meet its target: China's economy grew 6.7 percent year-over-year in the first nine months of 2018, according to official statistics.

Beijing, Zhou predicted, will keep growth stable, but there will be some "struggling" in the process.

— Reuters contributed to this report.