A migrant worker at a construction site, against a backdrop of skyscrapers in Beijing’s CBD. Photo: Weibo

China’s third-quarter gross domestic product (GDP) growth was 4.9%, slightly lower than the market expectation. According to some Chinese economists, the less-than-expected growth rate could not reflect whether the economy was strong or weak.

“The growth rate cannot fully explain the challenges the Chinese economy is facing,” Li Xunlei, vice-chairman of China Chief Economist Forum and chief economist of Zhongtai Securities, wrote in his recent article. “The focus should be on the economic structure.”

There is no doubt that China’s economy has done well during the global epidemic as the country has successfully controlled the spread and resumed work and production, Li said. It’s time for China to focus on its economic structural problems, he added.

China’s economic growth outperformed other countries, but its overall downward momentum has not changed, Li said, citing different indicators.

Firstly, industrial growth remained strong. In September, the year-on-year growth rate of the industrial added value rose to 6.9%, 1.3 percentage points higher than that of August.

The new economic sectors led the growth. Industrial added values increased 7.8% year-on-year in the high-tech sector, 15.9% in the electrical and mechanical equipment sector, 8% in the manufacturing of electronic equipment and 12.5% in the manufacturing of general equipment.

With the government’s supportive measures, the automobile manufacturing sector grew 16.4% year-on-year. Industries such as metal products, non-metallic mineral products and ferrous metal smelting and pressing also experienced high growth year-on-year, mainly driven by the strong growth in real estate investment.

Last month, the year-on-year growth rate of service industry production increased by 1.4 percentage points to 5.4%, which is still low compared with previous years.

Secondly, the amount of government debt increased in the first nine months from a year ago, but infrastructure investment remained weak. The manufacturing sector was suppressed by the weakening external demand.

Fixed asset investments grew 0.8% in the first nine months of this year from a year earlier, while infrastructure investment (excluding power generation) rose 0.2% year-on-year. Both figures declined by 0.3% year-on-year in the first eight months of 2020.

This year, fiscal revenue dropped sharply due to the epidemic. The additional issuance of government bonds was mainly offset by the widening fiscal deficit. The growth of public expenditure was not significant as infrastructure projects were slowed down.

Investments in the manufacturing sector also remained weak, except those related to pharmaceuticals and electronic equipment makers.

Thirdly, the real estate industry was still in a down cycle.

Between January and September, property development investments surged 5.6% from the same period of last year. However, property demand kept falling. Sales of private apartments decreased 7% year on year in September, while new construction dropped 2%.

Fourthly, domestic consumption continued to recover, driven by the improving consumer sentiment before the so-called “double festivals,” which refer to the Mid-Autumn Festival and National Day holiday on October 1.

In September, sales of beverages, tobacco and alcohol rose significantly while sales of grain, oil and food also picked up. Sales of automobile and luxury goods gained support. However, sales of home appliances and construction materials declined. Catering revenue decreased by 2.9% year-on-year.

Li said the strong growth of investments in manufacturing and property development was contributed by the government’s stimulus and the suppressed demand amid the epidemic in the first quarter.

He said it was not a good trend that the sale of luxury goods saw robust growth, but sales of low- and mid-range products contracted. Also, he said the strong sales growth of high-end properties had added risks to financial markets.

Li said after China celebrated victory over its battle with the pandemic, it should focus more on economic structural problems, such as how to reduce the income disparity, direct the investments to serve the real economy and lower the risks in the property and financial markets.

Xu Yuenai is a Beijing-based columnist specializing in international relations.