China barely kept up appearances in the third quarter amid lackluster domestic demand and what officials in Beijing habitually refer to as a “grim and complex” external environment.
The world’s second-largest economy expanded at a 4.8% clip in Q3, the NBS said Monday. That was a tenth better than consensus.
Pretty much the only thing Xi Jinping has going for him economically right now is trade, ironic given the Trump administration’s determination to knee-cap China’s export machine. Shipments abroad posted the briskest rate of annual expansion recorded in 2025 so far last month, but it was too little, too late to prop up the overall growth readout.
As the figure shows, the 4.8% expansion counted as the slowest pace for real growth in a year. The implied deflator came into the Q3 tally riding a nine-quarter streak in negative territory, which is to say China’s spent more than two years mired in a broad-based deflationary quagmire. That’s the longest such streak in the modern history of Chinese macro data.
Inflation figures for September showed headline price growth was negative, while factory-gate prices fell a 36th consecutive month. Indicative of the Party’s struggle to revive household demand, the stock of outstanding yuan loans grew at a record low 6.6% pace last month, according to the latest credit data from the PBoC.
Monday’s activity data covering September didn’t do much to change the narrative. Retail sales growth was just 3%, the slowest this year. That counts as hopelessly moribund in the Chinese context.
Industrial output, on the other hand, rose a brisk 6.5%, easily topping the highest estimate in Bloomberg’s survey of forecasters.
As the figure shows, the spread between the YoY growth rate for retail sales and IP was the most negative (i.e., IP growing faster) since April of 2024.
This goes without saying by now, but China’s experiencing a balance sheet recession, and deflation’s becoming endemic. I’ve said it over and over again: Cutting rates isn’t going to help. The problem’s not the price of money nor the availability of credit. The problem is a dearth of demand. China needs the federal government to be a spender of last resort.
We’ll hear a lot of promises in that regard in the days ahead. The fourth plenum’s coming up. But just like the communications which accompany all such Party functions, any associated fanfare will be long on rhetoric, short on specifics and devoid of concrete timelines.
At the risk of overstating the case, the whole project’s in jeopardy. As Bloomberg wrote Sunday, China’s supposed to be rebalancing the economy toward domestic demand. Currently, they’re doing the opposite: Leaning on exports to compensate for a dying consumption impulse, a dicey proposition when there’s a trade war raging.
