China’s Lackluster Growth Continues, Signaling Why Beijing Acted on Economy

New data shows the challenges facing Chinese policymakers trying to stimulate an economy marked by falling prices, weak consumer spending and a housing market crash.

The Chinese economy continued to grow at a lackluster pace over the summer, according to data released on Friday, underscoring the urgency of the government’s recent attempts to bolster growth.

Construction has slowed because of a housing market meltdown. Millions of young college graduates have been unable to find work. Many local governments have run out of money to build roads or even pay the salaries of teachers and other workers.

China’s economy grew 0.9 percent in July through September over the previous three months, China’s National Bureau of Statistics said. When projected out for the entire year, the economy grew at an annual rate of about 3.6 percent in the third quarter.

But the growth in part reflected an official revision that showed the second quarter was even weaker than previously acknowledged. Growth between April and July was at an annual pace of 2 percent, and not the previously reported pace of 2.8 percent.

Beijing has announced a series of measures since Sept. 24 to address the economy’s lingering troubles. The central bank has cut interest rates and minimum down payments for mortgages. The finance ministry promised the sale of more bonds to raise money for local governments to pay municipal salaries and buy vacant apartments for conversion into affordable housing.

“The timing of the stimulus shows the government realizes the deterioration of the economy,” said Louise Liu Qian, the founder and chief executive of Wusawa Advisory, a Beijing geopolitical and business consulting firm.

There were some bright spots. In September, factory output rose and sales of appliances and electronics surged because of consumer trade-in subsidies.

The challenges facing policymakers continue to be complicated by falling prices across the Chinese economy, a phenomenon called deflation. With prices lower for everything from apartments to cars to restaurant meals, it is hard for many companies and families to earn enough to pay their mortgages and other debts.

According to the data released on Friday, prices were roughly a half percent lower than a year earlier. That represented the sixth consecutive quarter of falling prices according to the broadest measure, the gross domestic product deflator.

Prices for new apartments in China’s 70 largest cities tumbled at an annual rate of 7 percent in September, while prices for existing homes are falling even faster in many cities.

Most of the stimulus programs announced in the past month have involved making more credit available, but households and companies have been wary of borrowing.

And the government has not shown strong signs that it is ready to address the biggest problem in the real estate market: how to clear out a backlog of tens of millions of empty homes, many of which have not even been finished by developers. Many investors and economists are unconvinced that officials are willing to shift significant spending toward consumers and away from national priorities like building high-tech factories and upgrading the military.

Investors in China initially reacted to the announcement of the economic data on Friday with a shrug. Share prices later rose sharply after the governor of the central bank released details of a program to expand lending to buy stock.

Many storekeepers complain of weak sales, even as they cut prices so steeply that they are left with little or no profit.

“We have no transactions now,” said Yu Xingjun, a wallpaper dealer in Zibo in east-central China, as he sat idle in his empty store on a recent weekday. “As real estate fails, everything else follows.”

Overall retail sales were up 3.2 percent in September from a year earlier, compared with a gain of only 2.1 percent in August. One component of that data, sales of household appliances and electronics, soared 20.5 percent last month from a year ago.

Over the summer, the government roughly doubled trade-in subsidies, particularly for the replacement of older, energy-inefficient items like washing machines and refrigerators. Smaller rebates introduced last spring were dismissed by many shoppers as too meager.

Falling prices are a problem for China not just at home but increasingly in its overseas trade. Deflation is starting to hurt what had been China’s sole remaining economic strength this year: exports.

By September, the overall value of China’s exports was growing only 2.4 percent from a year earlier, as an ever-rising volume of shipments was mostly offset by Chinese manufacturers receiving less money for each product.

For the past four years, China has relied on exports to offset difficulties in its domestic economy. But Chinese companies have cut prices to try to clear their warehouses of excess merchandise.

For example, the number of cars and trucks exported by China surged 36 percent during the past three months, from the same period a year earlier. But their total value increased 29 percent. That means the average price for each exported motor vehicle was falling. Similarly, the number of flat-panel displays that China exported was up 12 percent. But their total value climbed half as fast.

The result is in some ways the worst outcome for China’s leaders. The country’s rising quantity of exports and increasing market share in overseas markets have triggered a backlash in many countries, prompting tariffs.

Chinese officials contend that they are ready to pursue the answer that many foreign and Chinese economists recommend: strengthen the domestic economy.

Central to that task is stabilizing construction and other real estate-related industries that together accounted for a quarter of the economy before the property meltdown began three years ago. Real estate investment was down 10.1 percent in the third quarter from a year ago.

The total square footage of buildings where construction started has dropped 66 percent in the first nine months of this year compared with the same period in 2019, before the pandemic. Data on so-called construction starts are important because the numbers indicate how much activity will take place over the next several years.

There are signs that loosened lending policies are having some impact. Shanghai recorded more existing apartments changing hands on Oct. 13 than on any day since September 2023, according to the state news media. But even in Shanghai, buyers are cautious after three years of flat or falling prices.

“The investment appeal is gone, and buying a house is essentially for practical needs now,” said Cao Longquan, a Shanghai real estate agent. “While apartment viewings have increased, buyers remain relatively cautious.”

The slowdown in economic growth was less apparent in the Chinese government’s preferred statistic: the change in the third quarter versus the same period last year. By this measure, the economy was 4.6 percent larger than a year earlier, down from a 4.7 percent pace in the second quarter.

Many analysts have warned that China’s economic troubles echo Japan’s struggle a generation ago with rising debt and slowing growth. But some believe the government’s stimulus measures could reduce the chances the outlook will get worse.

“China is in the midst of a debt-deflation spiral, but Beijing’s latest economic policy U-turn will go a long way to preventing China from repeating Japan’s experience during the 1990s,” said Diana Choyleva, chief economist at Enodo Economics, a London research firm focused on China.

Li You contributed research.