China Q3 2023 Economic Roundup: GDP Growth Beats Forecasts

We break down key data points in the China Q3 2023 economic roundup released by the National Bureau of Statistics. The Chinese economy appears to have ‘bottomed out’ with GDP growth marginally higher than forecast. However, the property sector continues to be a drag on commercial investment. Import-export data saw less contraction, as consumption and services data offered a silver lining.

China’s National Bureau of Statistics (NBS) has released the economic data for September and the first three quarters of 2023. The data shows strong recovery in the third quarter of the year, with GDP growth beating forecasts and services and consumption rebounding.

Earlier in October, the General Administration of Customs (GAC) also released China’s foreign trade data for the first nine months of the year, showing that the ongoing contraction in imports and exports has narrowed.

The positive economic figures offer an optimistic view of the country’s growth trajectory going into the fourth quarter, and place it in good standing to hit its annual growth target.

China Q3 2023 key economic indicators

China’s GDP in the first three quarters of 2023 reached a total of RMB 91.3 trillion (approx. US$12.48 trillion), growing 5.2 percent year-on-year. In the third quarter alone, the year-on-year GDP growth rate reached 4.9 percent, beating the median forecast of around 4.6 percent.

The services sector posted the strongest year-on-year growth rate among the three primary sectors at 6 percent in the first three quarters of 2023.

On a quarterly basis, China’s GDP grew by 1.3 percent in the third quarter.

Industry growth

In the first three quarters of 2023, industrial added value (of companies with an annual main business income of over RMB 20 million) grew by 4 percent year-on-year, accelerating by 0.2 percentage points from the same period in 2022. In the month of September, industrial added value grew by 4.5 percent, maintaining the same growth rate as in August.

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The value-add of the three main industry sectors saw positive growth rates:

• The mining industry grew 1.7 percent year-on-year.
• The manufacturing industry grew 4.4 percent year-on-year.
• The electricity, heating, gas, and water production and supply industry grew 3.5 percent year-on-year.

Meanwhile, the value-add of equipment manufacturing grew by 6 percent year-on-year, 2 percentage points faster than between the first and third quarters in 2023.

The production output of renewable energy products experienced particularly strong growth:

• Solar energy batteries grew 63.2 percent year-on-year.
• Electric vehicle (EV) charging piles grew 34.2 percent year-on-year.
• New energy vehicles grew 26.7 percent year-on-year.

Between January and August 2023, the total profits of industrial companies above a designated size (those with an annual main business income of over RMB 20 million) across the country fell by 11.7 percent year-on-year. However, this decline narrowed by 5.1 by percentage points from the first six months of the year, and actually grew by 17.2 percent year-on-year in August.

Services growth

Service industry added value grew by 6 percent in the first three quarters of 2023 year-on-year. High growth rates were recorded across multiple sectors:

• Hospitality and catering grew 14.4 percent year-on-year.
• Information transmission, software, and information technology grew by 12.1 percent year-on-year.
• Leasing and business services grew by 9.5 percent year-on-year.
• Transport, warehousing, and postal services grew by 7.5 percent year-on-year.
• Financial services grew by 7 percent year-on-year.

In September, the Index of Services Production (ISP), which measures the change in output of the service industry, grew by 6.9 percent year-on-year. This is a slight acceleration of 0.1 percentage points from August. Several service sectors also reported strong ISP figures, with hospitality and catering up 17.7 percent, information transmission, software, and IT services up 11.3 percent, and transport, warehousing, and postal up 9.3 percent year-on-year.

Between January and August 2023, the operating income of service industry companies above a designated size (annual main business income of over RMB 20 million) rose by 7.2 percent year-on-year.

Consumption

In the first three quarters of 2023, total retail sales of consumer goods reached RMB 34.2 trillion (US$4.67 trillion), a year-on-year growth rate of 6.8 percent.

Of this:

• Merchandise sales reached RMB 30.5 trillion, up 5.5 percent year-on-year.
• F&B revenue reached RMB 3.7 trillion, up 18.7 percent year-on-year.

In September alone, total retail sales of consumer goods increased by 5.5 percent year-on-year, an acceleration of 0.9 percentage points from the previous month. Service retail sales in the first three quarters were up 18.9 percent year-on-year.

Meanwhile, in the first three quarters, sales of basic daily necessities also grew steadily:

• Retail sales of clothing, shoes, hats, needles, and textiles growing by 10.6 percent year-on-year.
• Grain, oil, and food commodities growing 5.3 percent year-on-year.

Online retail sales across the country reached a total of RMB 10.8 trillion, a year-on-year increase of 11.6 percent. Of this, online retail sales of physical goods reached RMB 9 trillion, up 8.9 percent year-on-year, accounting for 26.4 percent of the total retail sales of consumer goods.

The uptick in consumption is also reflected strongly in the data on per capita services consumption. In the first three quarters of 2023, the per capita service consumption expenditure increased by 14.2 percent year-on-year, accounting for 46.1 percent of Chinese residents’ per capita consumption expenditure, a significant increase of 2 percentage points from the same period in 2022.

Investment

Fixed-asset investments (FAI) in the first three quarters of 2023 is also recovering, with total FAI growing 3.1 percent year-on-year to reach RMB 37.5 trillion (US$5.13 trillion). FAI in the industrial sector saw strong growth, up 9 percent year-on-year, while investment in the services sector grew by 0.7 percent year-on-year. In September, FAI grew by 0.15 percent from the previous month.

Of the total FAI in the first three quarters:

• Infrastructure investment grew by 6.2 percent year-on-year.
• Manufacturing investment increased by 6.2 percent year-on-year.
• Real estate development investment fell by 9.1 percent year-on-year.

China’s property sector has continued to drag on growth as investment and sales continue to fall. In the first three quarters, the total area of commercial housing sold fell by 7.5 percent year-on-year to 848.06 million square meters, while the sales volume of commercial housing fell by 4.6 percent year-on-year to RMB 8.9 trillion (US$1.2 trillion).

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Overall private investment fell by 0.6 percent year-on-year in the first three quarters. However, when excluding real estate development investment, the growth rate jumps to 9.1 percent year-on-year.

High-tech industries continued to attract investment, with investment up 11.4 percent year-on-year. Of this:

• Investment in high-tech manufacturing increased by 11.3 percent year-on-year.
• Investment in high-tech services increased by 11.8 year-on-year.

Several high-tech manufacturing industries continued to see strong growth in investment:

• Investment in aviation, spacecraft, and equipment manufacturing increased by 20.7 percent year-on-year.
• Investment in medical equipment and instrument manufacturing increased by 17 percent year-on-year.

China’s Ministry of Commerce (MOFCOM) had not yet released the data on foreign direct investment (FDI) in China for September at the time of writing this article.

Foreign trade

Per the GAC, which last week released China’s trade data, China’s total foreign trade in RMB terms reached RMB 30.8 trillion for the first three quarters of 2023, a slight contraction of 0.2 percent year-on-year. In the month of September, imports and exports reached RMB 3.74 trillion (US$520.6 billion), the highest monthly volume in 2023 so far.

The data provided in US dollars by the GAC, meanwhile, shows total trade between January and September reaching US$4.41 trillion, up 3.8 percent year-on-year. However, imports and exports in the month of September contracted by 6.2 percent compared to the previous year. This figure is nonetheless an improvement from August, when overall trade contracted by 8.2 percent year-on-year.

Note that the discrepancy between the growth rates of trade-denominated US$ and RMB is due to the depreciation of the renminbi yuan against the US dollar over the past year.

China’s trade with multiple major trade partners between January and September 2023 also continued to contract in US$ terms:

• Total trade with the EU decreased 7.7 percent year-on-year, improving from the 7.8 percent contraction recorded between January and August;
• Total trade with the US decreased 14 percent year-on-year, improving from the 14.5 percent contraction recorded between January and August;
• Total trade with ASEAN decreased 5.5 percent year-on-year, falling further from the 4.8 percent contraction recorded between January and August 2023;
• Total trade with Japan decreased 12.5 percent year-on-year, improving from the 12.8 percent contraction recorded between January and August; and
• Total trade with South Korea decreased 16.2 percent year-on-year, improving from the 17 percent contraction recorded between January and August.

Meanwhile, trade data denominated in RMB shows that in the first three quarters of 2023, imports and exports with countries along the “Belt and Road” reached RMB 14.32 trillion (US$1.96 trillion), a year-on-year increase of 3.1 percent. This accounted for 46.5 percent of China’s foreign trade over this period.

China’s path toward recovery

The latest data from the NBS indicates that China’s economy may have reached a turning point in its post-pandemic recovery. While the somewhat uneven recovery and slower growth seen earlier had led to doubts over China’s ability to meet its 2023 growth targets, the latest numbers indicate it is on the path to reach it.

The average GDP growth rate between January and September 2023 stands at 5.2 percent, above the annual target of “around 5 percent” set by the government at the beginning of the year. Meanwhile, the Q3 GDP growth rate of 4.9 percent is higher than the median 4.6 percent forecast set by analysts.

This reflects the sentiment among various analysts that China’s economy has already “bottomed out”.

Recovery has been driven in part by the rebound of services and consumption seen in recent months. These were some of the most heavily impacted areas of the economy during the pandemic, and the lifting of restrictions has in itself gone a long way to enabling their comeback.

In a press briefing readout released along with the September economic data, the Deputy Director of the NBS Sheng Laiyun also spoke of the important role that services consumption has played in the recovery, noting the rapid return of in-person services such as travel and catering.

China’s industrial sectors, which remain the bedrock of the Chinese economy, have also maintained stable recovery since reopening, with value-add accelerating particularly in August and September. Market optimism is also reflected in the Purchasing Managers Index (PMI), which reached 50.2 percent in September, indicating an expansion.

Another positive development is the significant improvement in the profits of industrial companies in recent months, with August posting a particularly strong 17.2 percent year-on-year growth.

At the same time, China faces a number of economic hurdles in the coming months. The property sector, which has been in a state of crisis since 2021, continues to drag on investment numbers.

Foreign trade, which has long been a major driver of economic growth, is still seeing negative growth, suffering from decreased demand in overseas markets due to high inflation and diplomatic disputes with major trade partners such as the EU. Nonetheless, foreign trade was better than expected in September, with the contractions in exports and imports narrowing.

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