MNI: China Advisors Eye 4.8% Q3 GDP Amid Slowing Momentum

China’s economy is expected to expand by about 4.8% year-on-year in the third quarter, keeping growth broadly on track to meet the government’s “around 5%” full-year target, but raising concerns about the outlook for 2026, advisors and analysts told MNI, noting Beijing is likely to roll out further policy support in the coming months to sustain momentum. 

“The estimated 4.8-4.9% year-on-year expansion in Q3 would equate to about 5.1% GDP growth over the first three quarters, meaning authorities need at least 4.5% in Q4 to ensure the annual target,” said Xu Hongcai, deputy director at the China Association of Policy Science’s Economic Policy Commission.

A researcher at a high-level government-backed think tank, who also predicted 4.8-4.9% for Q3, noted Q4 growth faced pressure from weaker economic momentum amid fading policy effects and a higher comparison base, which also means officials may need to maintain steady growth in 2026 through greater central government borrowing next year.

Analysts from Huachuang Securities projected a 0.2% y/y fall in fixed-asset investment for the first three quarters, deteriorating from the 0.5% growth in the Jan-Aug period, with manufacturing investment likely growing at a slower pace than GDP for the first time since 2021. Retail sales may slow to about 3.2% in September from August’s 3.4% due to a higher comparison base for durable goods sales and the slowdown in catering after the summer holiday. However, industrial output may accelerate to about 6% from the previous 5.2%, as indicated by the rising PMI production sub-index, the analysts said. 

The National Bureau of Statistics is set to publish the latest data on Oct. 20.

ADDITIONAL POLICIES

Though exports have shown unexpected resilience and supported overall growth, the economy still faces significant challenges, including the possibility that the U.S.-China tariff war could escalate further by year-end, the researcher said. Near-term policy measures should therefore focus on boosting infrastructure investment, as property remains a deep drag and manufacturing funding is held back by deflationary pressures, he continued. He highlighted the front-loading of next year’s local government special bond quota and the potential expansion of the announced CNY500 billion policy-based financial instruments aimed at replenishing project capital. (See MNI: Trump-Xi Meet Likely, But Any Deal Modest-China Advisors)

Although positive in the long run, the government's crackdown on excessive price competition has also disrupted manufacturing investment and some goods sales, such as cars, in the short term, given firms are not able to freely lower prices to clear volumes, the researcher added. “Currently, it is in a transition period where the 14th Five-Year Plan has just ended and major projects of the 15th Five-Year Plan have not yet been launched,” said the researcher, also noting the lack of motivation by local governments to launch new projects amid tight budgets and stricter financial discipline.

Xu warned that a balance between expanding investment and preventing risks should be achieved, as the repayment of some reserved projects cannot withstand scrutiny. “The wealth effect brought about by the increase in the market value of A-shares will help boost investment and consumption to some extent, but the difficulty in boosting employment and income, as well as the supply-demand imbalance reflected by deflationary pressure, remain the biggest challenges,” Xu said, calling for greater openness to private enterprises in highway, railway, and energy infrastructure construction to disperse competition, which should be the next focus of the ongoing "anti-involution" campaign.

“The current campaign is more gradual, and market-oriented among downstream companies, unlike the previous practice using administrative means to reduce the production capacity of upstream state-owned enterprises,” the researcher said, expecting limited near-term uplift to PPI, which may struggle to turn positive after falling for three years by 2.3% y/y in September.

Xu also suggests as much as a 50 basis point cut in the reserve requirement ratio and at least a 10bp reduction in the policy interest rate in Q4.

Both advisors expect greater emphasis on boosting income and social welfare in the outline of the 15th Five-Year Plan to be released later this month, along with a focus on technology innovation and industrial upgrade.