China's economic growth picks up speed in third quarter

BBC chief business correspondent Linda Yueh explains how China is seeking to rebalance its economy

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China's economic growth picked up pace in the July-to-September period, the first rise in three quarters.

The world's second-biggest economy grew 7.8% from a year earlier, up from 7.5% expansion in the previous quarter.

The official figures also showed growth in industrial output, retail sales and fixed asset investment.

After years of blistering growth, China has seen its pace of expansion slow recently and there have been fears that growth may slow further.

China has set a growth target of 7.5% for the year. Analysts said the latest numbers indicated that it was likely that Beijing would meet this.

"This is an indication that China's economic growth is holding up in a range which is within the comfort zone of both the Chinese policymakers as well as global watchers," said Song Seng Wun, a senior economist with CIMB Research .

'Keep it going'

Over the past few decades China has relied heavily on its exports and manufacturing sectors as well as government-led infrastructure spending to help boost growth.

Start Quote

The Chinese government is aiming for a slower and better balanced economy that can grow more sustainably”

End Quote

However, a slowdown in key markets such as the US and Europe has hurt demand for its exports.

As a result, it has been trying to spur domestic demand to offset the decline in foreign sales and also to rebalance its growth.

Earlier this year, it unveiled fresh measures to help boost the economy.

From 1 August, China has suspend value-added tax (VAT) and turnover tax for small businesses with monthly sales of less than 20,000 yuan ($3,257; £2,125).

The cabinet said the move would benefit more than six million small companies and boost employment and income for millions of people.

Policymakers said they would also implement measures to simplify customs clearance procedures, cut operational fees and facilitate the exports of small and medium-sized private enterprises.

The cabinet also announced plans to completely open China's railway construction market to private investors to develop the sector further.

It said it would set up a railway development fund, with the initial money coming from the government.

Analysts said the moves were starting to have an impact on the growth numbers.

A model of a luxury property development in Beijing There are concerns that China's property market, a key driver of growth, may be overheating

"There is certainly a build up of momentum among the small manufacturers, which is an indication that China's policies targeted at them are working," said Tony Nash, vice-president at IHS.

Factory output rose 10.2% in September, from a year earlier. Meanwhile, retail sales rose 13.3% and fixed asset investment jumped 20.2% during the month from levels a year ago.

Tim Condon of ING added that the measures may help China sustain its growth rate in the current quarter as well.

"The mini-stimulus we've seen is enough to keep it going at this pace in the fourth quarter," Mr Condon said.

Sustainability concerns

However, there have been some concerns over whether the economic rebound is sustainable in the long run, not least due to the continued rise in property prices.

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The government concerns about an over-heated property market are increasing, and tougher measures to curb rising prices may be forthcoming”

End Quote Shen Jianguang Mizuho Securities

Property prices have now risen for eight months in a row, despite government efforts to cool the market.

Some analysts have said that China's new leaders, who took charge in March, have so far tolerated the price rises due to concerns over slowing economic growth.

According to some estimates, about 25% of overall investment in China goes towards property, making it one of the most important growth sectors.

But the continued surge in prices has fanned fears that asset bubbles may be forming.

"Between real estate and the lending environment, there are concerns that things may be heating up," said Mr Nash of IHS.

"If not addressed properly, and in time, it could pose a serious threat to China's growth."

Analysts said that with growth rebounding, Beijing may take measures to try and curb speculation in the property market.

"We think the recovery in the third quarter was mainly driven by the strong momentum of the property market," said Shen Jianguang, chief China economist with Mizuho Securities in Hong Kong.

"The government concerns about an over-heated property market are increasing, and tougher measures to curb rising prices may be forthcoming.

"We expect gross domestic product (GDP) growth will slow to 7.6% in the fourth quarter," he added.

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