China’s economy grew 4.8% in the third quarter, as expected, but investment saw a ‘rare and alarming’ decline

BEIJING – China’s economy grew 4.8% in the third quarter from a year earlier, the slowest pace for a year but in line with analysts’ expectations despite a continued slump in real estate.

Investment in fixed assets, which includes real estate, unexpectedly fell 0.5% in the first nine months of the year as spending on infrastructure and manufacturing slowed. Analysts polled by Reuters had forecast growth of 0.1%.

Property investment extended its 13.9% decline in the year to September, compared with a 12.9% decline in the first eight months of the year.

The decline in fixed asset investment is “rare and alarming,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note. He warned that fourth-quarter GDP growth faces downward pressure.

The last time China saw a decline in fixed asset investment was in 2020 during a pandemic, according to 1992 data from Wind Information.

“Weakness in property investment may persist for longer than previously thought,” Bruce Pang, an associate professor at CUHK Business School, said in Chinese, as translated by CNBC.

“This could represent a structural restructuring and it is possible that investment will never return to previous levels,” he said. “In this context, China needs to consider how to use investment from other sectors to fill the investment gap.”

Industrial production rose 6.5% in September, beating expectations for a 5% increase and up from 5.2% growth in the previous month.

Excluding real estate, fixed asset investment rose 3% in the first three quarters of the year, according to official data, down from 4.2% in August. Private sector investment outside real estate rose 2.1% in the year to September, also slower than the 3% recorded in August.

“The weakness in investment spending, particularly by the private sector, reflects a lack of confidence in the economy’s growth prospects, as well as in government policies that could support growth,” Eswar Prasad, an economics professor at Cornell University, said in an email.

Retail sales rose 3% in September from a year earlier, in line with analysts’ forecasts. In a sign of waning support from China’s consumer goods subsidy program, sales of home appliances rose a modest 3.3% in September, compared with a 25.3% increase in the first three quarters of the year.

“I don’t think we can stimulate domestic demand without first stabilizing the housing market,” Eurasia Group’s Dan Wang told CNBC’s “Squawk Box Asia” Monday before the data release.

The China Bureau of Statistics said the disposable income of urban residents rose 4.5% in the first three quarters of the year after adjusting for price changes, while rural residents saw a 6% increase.

The urban unemployment rate fell to 5.2% in September from 5.3% the previous month.

However, retail sales slowed from 3.4% year-on-year growth in August, while third-quarter GDP slowed from 5.2% growth in the previous quarter.

Official data for September also showed the continued resilience of Chinese exports despite tensions with the US

The core consumer price index, which excludes food and energy, rose at the fastest pace since February 2024. However, headline inflation fell 0.3%, missing expectations, as deflationary pressures persisted.

Earlier on Monday, China left its benchmark interest rates unchanged for the sixth straight month, in line with expectations, with the one-year key interest rate at 3% and the five-year key at 3.5%.

China’s top officials are meeting from Monday to Thursday to discuss policies and development goals for the next five years.

Beijing has sought to shift the economy toward domestic consumption for growth while developing domestic technology in the face of growing U.S. restrictions.

“China should step up its technology efforts, but we also strongly believe that the so-called old economy will remain the backbone of the economy for the foreseeable future,” Nomura’s chief China economist Ting Lu said last week. “Beijing will need to clean up the mess in the real estate sector in 2026-30 for several reasons.”

He noted that real estate remains second only to exports in terms of contribution to China’s GDP, while about half of household wealth is in property and that the sector still accounts for about 18% of local government revenue. Excessive investment in new industries such as electric vehicles “has already become counterproductive,” Lu said.