China’s stalled growth could lead to global shockwaves

CHINA’S economic growth is sinking under pressure from a construction slowdown and power shortages, prompting warnings about a possible shock to its trading partners and global financial markets.

The world’s second-largest economy grew by a weaker-than-expected 4.9% compared to a year ago in the three months ending in September, down from the previous quarter’s 7.9%, government data showed.

Factory output, retail sales and investment in construction and other fixed assets all weakened.

Manufacturing has been hampered by official curbs on energy use and shortages of processor chips and other components due to the coronavirus pandemic.

Construction, an industry that supports millions of jobs, is slowing as regulators force developers to cut reliance on debt that Chinese leaders worry is dangerously high.

“Ripple effects to the rest of the world could be significant” due to weaker Chinese demand for raw materials, said Mo Ji of Fidelity International in a report.

“Even developed markets, including the US, would not be immune to a significant tightening in global financial conditions as a result of a negative China growth shock accompanied by financial stress.”

Compared with the previous quarter, the way other major economies are measured, output barely grew in the July-September period, expanding by just 0.2%. That was down from 1.2% in the April-June period and one of the past decade’s weakest quarters.

The slowdown adds to pressure on Beijing to prop up activity by easing borrowing controls and spending more on building public works. But forecasters said even if that happens, activity will weaken before policy changes take effect.

“Growth will slow further,” Louis Kuijs of Oxford Economics said in a report.

Chinese leaders are trying to steer the economy to more sustainable growth based on domestic consumption instead of exports and investment and to reduce financial risk.

Construction and housing sales, an important source of demand for steel, copper and other industrial imports, have slowed since regulators ordered developers to reduce their debt levels.

Private sector forecasters have cut their growth outlook this year for China, though they still expect about 8%.