China’s economic growth slows to 4.9%YoY in the third quarter of 2021…Full-year growth projected at 7.5-8%YoY

          In the third quarter of 2021, China’s economy faced a wide range of economic issues. Limited stimulus packages were introduced, resulting in a slowdown in the country’s economic growth to 4.9%YoY, following year-on-year growth of 18.3% and 7.9% in the first and second quarter respectively. The manufacturing sector was pressured by rising manufacturing costs and energy shortages, resulting in a Producer Price Index (PPI) growth of 9.0-10.7% due to the continued high prices of commodities such as coal, steel and chemicals. The services sector was extensively affected by lockdowns in cities to curb the spread of COVID-19. Fixed asset investment showed signs of slowing down, particularly in the real estate sector, which was affected by both government measures and market pressures. While overall fixed asset investment expanded by 7.3% YoY, economic anxiety has been growing following news of defaults by a major Chinese real estate company, which may cause fixed asset investment to decelerate. However, China’s exports grew by 22.7%YoY to CNY15.55 trillion in line with global economic recovery, while imports grew by 22.6%YoY to CNY 12.79 trillion.

         Looking towards the final quarter of 2021, the Chinese economy is expected to see slowing growth due to the high base of last year and ongoing uncertainty, especially with regard to the energy shortage which could drag on into this coming winter. Even though the Chinese government has consistently attempted to find alternative sources of energy to replace coal, fossil fuels remain China’s key energy source in electricity generation, accounting for 65% of all electricity produced. Close attention should be paid to the impact on China's manufacturing sector, as both China’s and the world’s production chains are highly interconnected; disruptions in China’s manufacturing sector could affect global supply chains. KResearch has lowered China’s 2021 economic growth forecast to 7.5-8.0% YoY due to the risk that the energy crisis may intensify during the winter, which could have sweeping effects on both the manufacturing and services sectors. Other pre-existing issues added to the lowering of the  forecast, including the defaults by a large property developer that affect the overall property sector and investment atmosphere in China, risks of the unresolved trade war, and additional measures implemented by the Chinese government to control business operations. Nevertheless, KResearch views that the Chinese government will be able to maintain its economic growth for 2021 within the target or not less than 6.0%YoY.