China beats GDP forecast but property and zero-Covid woes mount

China’s economy grew faster than expected in the third quarter of this year but Monday saw foreign investors selling off Chinese shares amid concern about the country’s policy direction. Hong Kong’s Hang Seng index fell by 6.4 per cent, its biggest drop in a single day since 2009 during the global financial crisis, and shares in mainland China were also down.

China’s gross domestic product (GDP) grew by 3.9 per cent during the three months from July to September compared to the same period last year. The rebound, which followed an almost stagnant period in the second quarter when the economy grew by just 0.4 per cent, was stronger than most analysts predicted but still short of China’s full-year target of 5.5 per cent, which is already its lowest in three decades.

The quarterly GDP figure was part of a batch of economic numbers due to be released last week by China’s National Bureau of Statistics, the publication of which was abruptly postponed until after the end of last week’s five-yearly congress of the Communist Party.

Monthly figures for September showed industrial production rising by a higher than expected 6.3 per cent but retail sales grew by just 2.5 per cent, less than half the figure for August and unemployment rose slightly to 5.5 per cent.

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September also saw export growth slowing and the property market cool further with housing prices falling for a 13th consecutive month. Coronavirus lockdowns have dampened domestic demand as China pursues a zero-Covid policy that aims to identify and contain outbreaks of the virus within hours through mass testing and restriction of movement.

Monday’s selloff saw foreign investors dump a one-day record 17.9 billion yuan (€2.5 billion) of mainland Chinese shares in Hong Kong with tech giants including Alibaba and Tencent hit especially hard. The Chinese currency fell in offshore trading to 7.3069 per dollar, its lowest level since trading began in 2010.

The market turmoil followed Sunday’s confirmation of Xi Jinping for a third five-year term as China’s leader, at the head of a governing team dominated by his close allies. Figures perceived as champions of more liberal economic policies, such as vice-premier Hu Chunhua, were replaced by Mr Xi’s ideological soulmates.

In his speech to the party congress, Mr Xi promised to pursue a policy of “common prosperity” aimed at diminishing income and wealth inequality.

“We will enhance the roles of taxation, social security and transfer payments in regulating income distribution. We will improve the personal income tax system and keep income distribution and the means of accumulating wealth well-regulated. We will protect lawful income, adjust excessive income, and prohibit illicit income,” he said.

Mr Xi also defended China’s zero-Covid policy and analysts said Monday’s market selloff partly reflected investors’ fears that the economy could not recover while restrictions remain in place.

Part of Guangzhou, a factory hub for cars, electronics and chemicals in southern China, was placed under coronavirus restrictions on Monday, with indoor dining banned in restaurants and in-person teaching in schools suspended.