China's economic growth cooled to its weakest pace since the global financial crisis in the third quarter, with regulators pledging further policy support as a years-long campaign to tackle debt risks and the trade war with the United States began to bite.
Chinese authorities are trying to navigate through numerous challenges, as the trade war fears have sparked a blistering selloff in domestic stock markets and a steep decline in the value of the yuan versus the dollar, heightening worries about the growth outlook.
The economy grew 6.5 per cent in the third quarter from a year earlier, slower than 6.7 per cent in the second quarter, the National Bureau of Statistics said on Friday. Analysts polled by Reuters had expected the economy to expand 6.6 per cent in the July-September quarter.
The GDP reading was the weakest year-on-year quarterly growth since the first quarter of 2009 at the height of the global financial crisis.
"The trend of slowdown is strengthening despite Chinese authorities' pledge to encourage domestic investment to support the economy. Domestic demand turned out weaker than unexpectedly solid exports," said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.
After another big decline in Chinese stocks on Thursday, policymakers sought to soothe markets, with central bank governor Yi Gang saying the recent stock market fluctuations are largely driven by investor sentiment and equity valuations are not in line with economic fundamentals.
Senior regulators also pledging support for private firms and companies facing liquidity problems.
The Shanghai Composite index, which slumped more than 1 per cent in early trade, bounced back following the comments to be virtually flat at the midday break.
Third quarter growth was dragged down by the weakest factory output since February 2016 in September as automobile makers cut production by over 10 per cent amid a sales slowdown.
"The 6.5 per cent figure is definitely below our consensus expectations. Weakness is largely coming from the secondary industry- most notably manufacturing. We may review our Q4 forecasts," said Betty Wang, senior China economist at ANZ in Hong Kong.
On a quarterly basis, growth slowed down to 1.6 per cent from a revised 1.7 per cent in the second quarter, in line with expectations.
Importantly, second quarter sequential growth was revised down from the previously reported 1.8 per cent, suggesting the economy carried over less momentum into the second half than many analysts had expected.
Recent economic data have pointed to weakening domestic demand with softness across factory activity to infrastructure investment and consumer spending, as a multi-year crackdown on riskier lending and debt has pushed up companies' borrowing costs.
Before the data release, economists had expected China's full-year growth to come in at 6.6 per cent this year - comfortably meeting the government's 6.5 per cent target - and 6.3 per cent next year.
But now some say growth could slow even more dramatically next year.
"Looking ahead, the economic outlook is not optimistic with exports facing further headwinds as U.S. tariffs kick in and demand from emerging countries ebbs. GDP growth is likely to slow to 6.0-6.2 per cent next year," said Nie Wen, an analyst at Hwabao Trust Shanghai.
China's once high-flying automakers are now feeling the brunt of weaker consumer spending, with annual sales at risk of falling this year for the first time in decades. Data last week showed car sales fell the most in nearly seven years in September.
GM saw sales fall 15 per cent in the month and Volkswagen sales were down 10.5 per cent.
Beijing and Washington have slapped tit-for-tat tariffs on each other in recent months and plans for bilateral trade talks to resolve the dispute have stalled, triggering a domestic equities rout and putting pressure on China's already softening economy and weakening currency.
China's exports unexpectedly kicked into higher gear in September, largely as firms front-loaded shipments to dodge stiffer US duties. But the stronger sales drove a record trade surplus with the United States that could inflame the already-heated dispute between the two economic superpowers.
"We expect an adverse impact from the trade tension will appear more clearly in data after the start of new year," SMBC Nikko Securities' Mr Hirayama said.
Separate data on Friday showed China's factory output growth weakened to 5.8 per cent in September from a year earlier, missing expectations while fixed-asset investment expanded at a slightly faster-than-expected 5.4 per cent in the first nine months of the year.
Infrastructure investment rose 3.3 per cent year-on-year for Jan-Sep, slower than 4.2 per cent growth in the first eight months of the year.
Retail sales rose 9.2 per cent in September from a year earlier, bouncing back after several months of lackluster growth.
Faced with a cooling economy, stock market wobbles and a yuan currency under pressure, policymakers are shifting their priorities to reducing risks to growth by gradually easing monetary and fiscal policy.
Last week China's central announced the fourth reserve requirement ratio (RRR) cut this year, stepping up moves to lower financing costs.
And more support steps look likely, analysts say, as China starts to bear the full brunt of the trade dispute with the United States.
"China is pulling on all the levers to support domestic demand in the face of this trade pressure. There's already a big acceleration in lending underway and now the PBOC is announcing new steps."
"In the end, China will do what it takes to safeguard their economy and show the US: 'Hey, we don't need you.'"