Surging exports and the industrial production needed to sustain them have kept China's economy growing over the past three months, while consumer spending has stagnated and investment has slumped.
China's National Bureau of Statistics announced on Monday that its gross domestic product increased by 1.2% compared with the second quarter of this year. If this rate continues throughout the year, the annualized growth rate of China's economy will be approximately 4.9%.
This data has rebounded from the 4.3% growth rate reported by China from April to June. The economy grew by 4.5% year-on-year in the third quarter, indicating that China is still on track to achieve its official growth target of 4.5% to 5% this year.
But many Western economists are increasingly skeptical of China's official statistics, not least because Beijing has phased out the release of thousands of disaggregated data sets that previously provided independent verification of broader economic indicators. Independent estimates of recent growth generally range from half to two-thirds of the official figure.
China's export boom from July to September further widened its already large trade surplus with the rest of the world, helping the economy avoid a worse outcome. The year-on-year growth rate of exports in September hit a new high since July 2010, excluding months with data skew due to the timing of the Spring Festival, which interrupts factory production for several weeks.
The domestic situation is much bleaker.
Retail sales were unusually weak throughout the third quarter, although September sales rebounded from a particularly tough August. The real estate market continues to collapse, with existing home prices falling by about 40% since 2021, wiping out most of the savings of the middle class and making millions of families reluctant to spend.
Sales of cars and other durable goods, including home appliances, fell sharply.
A broad government trade-in subsidy scheme will be launched in summer 2024 and run until the end of 2025, encouraging households to make purchases they might otherwise put off. Many consumers today have little reason to replace their cars or appliances. However, car sales have fallen below pre-subsidy levels, and rising unemployment has further eroded consumer confidence.
Investment also fell, especially in property construction. Even infrastructure spending, long a pillar of China's economic growth, is showing signs of weakness. The collapse of a large number of real estate developers has severely impacted local governments' land sales revenue - historically the largest source of funds for local construction of roads, bridges, railways and other public works.
The result is an economy increasingly reliant on selling goods overseas while domestic demand deteriorates.
“China basically has to keep global export markets open for the system to continue to work,” said Logan Wright, a partner at research firm Rhodium Group.
Mao Shengyong, spokesperson and deputy director of the National Bureau of Statistics, said at a press conference in Beijing on Monday: "It should also be noted that the international environment is complex and changeable, the problem of insufficient domestic demand is still prominent, and the foundation for economic stability and improvement needs to be consolidated."
The stark contrast between China's industrial might and domestic economic woes is clearly visible in cities like Nanjing and Guangzhou. Nanjing, located in central China, was the former capital, while Guangzhou was the commercial center of the southeast.
Nanjing South Railway Station is a giant symbol of China's world-leading high-speed rail system. Some of the country's busiest north-south railway lines intersect here with the east-west trunk line running inland from Shanghai along the Yangtze River.
But just ten minutes' walk away, a nearly deserted three-story shopping mall reveals a completely different economic picture. The mall, with its gold and burnt ocher arches, saw few customers last week. Many stores are closed. The few shops that remain open have just one employee and are sometimes unmanned, relying instead on China's ubiquitous surveillance cameras to guard against theft.
