China's economy recovered more quickly than expected in the third quarter, but long-term growth will be hampered by COVID-19 restrictions that continue, a protracted real estate slump, and risks of a global recession.

The world's second-largest economy expanded 3.9% in July–September compared to a year earlier, according to official data released on Monday. This was faster than the 0.4% growth in the second quarter and exceeded the 3.4% pace predicted in a Reuters poll.

The coronavirus outbreak that resulted in lockdowns, coupled with a slowdown in export growth and further cooling in the vital real estate market, caused domestic demand to decline toward the end of the quarter, portending a rocky recovery.

The fact that China is likely to maintain its extremely strict COVID policies, which are supported by the government's Communist Party, which completed its top leadership reshuffle on Sunday with Xi Jinping winning a third term in office, casts further doubt on the future.

Investors' worries have increased due to the top governing body of China's new lineup. President Xi will continue to pursue ideologically motivated policies at the expense of economic expansion.

According to Julian Evans-Pritchard, senior China economist at Capital Economics, "there is no prospect of China lifting its zero-COVID policy in the near future, and we don't expect any meaningful relaxation before 2024."

Therefore, in-person activity will continue to be impacted by recurring virus disruptions, and additional widespread lockdowns can't be ruled out.

On account of worries about the economy, Hong Kong shares fell to 13-year lows and the onshore yuan hit a 15-year low.

The 3.9% GDP growth was driven by final consumption, which contributed 2.1 percentage points, while investment and net exports contributed 0.8 and 1.1 percentage points, respectively.

The urban per capita consumption in China decreased 0.2% year over year in the nine months leading up to September.

The data was supposed to be released on October 18 but it was postponed because of the Communist Party Congress last week.

On a quarterly basis, GDP increased by 3.9% compared to a revised decline of 2.7% in April–June and an anticipated increase of 3.5%.


Manufacturing helped to boost the economy; according to separate data, industrial output increased 6.3% in September from a year earlier, exceeding expectations of a 4.5% increase and 4.2% in August.

Aside from the risks at home, the Ukraine crisis and a global slowdown brought on by interest rate increases to tame raging inflation will put pressure on China's economy externally.


According to a Reuters poll, China's growth will slow to 3.2% in 2022, well below the official target of around 5.5% and one of the worst showings in nearly 50 years.

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Exports increased 5.7% from a year earlier in September, beating expectations but doing so at the slowest rate since April, indicating ongoing pressure. Imports increased by a meager 0.3%, falling short of forecasts for 1.0% growth.


Retail sales increased by 2.5%, slower than expected at 3.3% and down from 5.4% in August, highlighting the still shaky domestic demand.

Particularly, due to stricter COVID regulations, catering sales decreased 1.7% in September after increasing by 8.4% in August.

According to Nomura, as of October 17, 30 cities were enforcing various levels of lockdown or controls, affecting approximately 225.1 million people, up from 196.9 million the week before.

China's surveyed urban unemployment rate for September increased to 5.5%, which is the highest level since June, and the rate for job seekers between the ages of 16 and 24 was 17.9%.


As indebted developers raced to pool resources and complete projects on time, new home prices declined month over month for the second consecutive month in September, reflecting a continuation of homebuyer aversion.

Iris Pang, chief China economist at ING, said, "This set of data sends an important message that lockdowns are still a big uncertainty to the economy with the background of the real estate crisis, even though COVID measures have become more flexible as it depends on the number of COVID cases."

The effectiveness of pro-growth policy would be compromised because of this uncertainty.

Even though they have downplayed the significance of meeting the growth target, which was set in March, policymakers have implemented more than 50 economic support measures since late May in an effort to strengthen the economy and ease job pressures.

The overall policy will continue to be supportive, according to Hao Zhou, chief economist at Guotai Junan International.

However, further interest rate cuts are unlikely during a time of ferocious rate hikes by global central banks. "In our view, further policy impetus is required to buoy economic recovery."