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

Falling prices, weak consumer spending and a housing market crash help to explain why the Chinese government is taking steps to stimulate the economy.

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 the economy.

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.

Looming over it all are falling prices across the Chinese economy, from apartments to cars to restaurant meals. Broadly falling prices, a phenomenon called deflation, make it hard for companies and families to earn enough to pay their mortgages and other debts.

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.

The growth in part reflected an official revision on Friday to show that 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 lingering troubles that became clear in the numbers released on Friday. 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.

Investors initially reacted to the announcement of the economic data on Friday with a shrug, but share prices in China later jumped higher when the governor of the central bank released details of a program to expand lending to buy stock.

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.”

After working in the home decoration business for more than a decade, Mr. Yu has seen most of his sales evaporate in the last several years. “There was a time when not having orders was unthinkable, but now, it has been ages since I last received an order,” he said.

But the statistical bureau announced on Friday that overall retail sales were up 3.2 percent in September from a year earlier, compared to 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 after the government sharply increased trade-in subsidies over the summer. Smaller rebates introduced last spring were dismissed by many shoppers as too meager.

The slowdown in 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 4.7 percent in the second quarter.

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 companies receiving less money for each load.

For the past four years, China has relied on rapidly expanding exports to offset difficulties in its domestic economy. From cars to chemicals to solar panels, the physical volumes of China’s exports has just kept rising strongly.

But the money that China receives for each product is tumbling as Chinese companies have cut prices to try to clear their warehouses of excess merchandise.

The number of cars and trucks exported by China surged 36 percent from a year earlier during the past three months, for example. But their total value increased 29 percent, according to data from China’s General Administration of Customs. That means the average price for each exported motor vehicle was falling.

Similarly, the number of flat-panel displays exported by China was up 12 percent during the past three months from a year earlier. But their total value climbed half as fast.

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

Chinese officials contend that they are now ready to pursue the answer that many foreign and Chinese economists have been recommending for months: strengthen the domestic economy. Finance Minister Lan Fo’an said on Saturday that the agency would soon “launch a package of targeted incremental policy measures in the near future to stabilize growth, expand domestic demand and mitigate risks.”

Central to that task is stabilizing the construction sector 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 National Bureau of Statistics said on Friday.

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 they indicate how much activity will take place over the next several years.

Shanghai recorded more existing apartments changing hands on Oct. 13 than on any day since September 2023, according to state 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.”

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.