China’s economic recovery is not as weak as expected in October, but support is needed to avoid a ‘regression’

China’s mixed economic data in October pointed to an uneven and unstable recovery, with the world’s second-largest economy still needing more supportive policies in the face of persistent headwinds.

Consumer and industrial activities exceeded market expectations last month, but investments were again disappointing and the real estate sector remained a weak link.

But real estate investment fell 9.3 percent in the first 10 months from a year earlier, contracting further from the 9.1 percent decline in the first three quarters, increasing the risks the real estate sector poses to China’s outlook.

“The data suggests that the recovery was struggling to get on a solid footing at the start of the fourth quarter, but it was not as weak as some had feared,” analysts at Capital Economics said.

“However, we still expect a modest acceleration in growth over the coming months. Policy looks set to remain supportive, and may even intensify, to prevent the economy from falling into reverse.

Fixed asset investments, affected by the real estate contraction, expanded by 2.9 percent in the first ten months, on an annual basis, down from the growth rate of 3.1 percent in the first nine months.

Meanwhile, private investment remained in contraction in the first 10 months as confidence remained weak.

“There are still many external instabilities and uncertainties, and domestic demand remains insufficient,” the National Bureau of Statistics said on Wednesday.

“The foundation of economic recovery still needs to be strengthened.”

Additional public investments in water infrastructure, affordable housing and urban renewal are likely to become sources of major growth, said Xu Tianzhen, an economist at the Economist Intelligence Unit.

In October, China’s industrial output remained stable as growth rose to 4.6 percent year-on-year from 4.5 percent in September, with production of automobiles, solar batteries and integrated circuits recording notable increases.

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The central bank has already increased liquidity support and is expected to provide more credit support to the struggling property market, said Zhu Hao, chief economist at Guotai Junan International in Hong Kong.

Before the data was published on Wednesday, the central bank pumped 500 billion yuan (US$68.7 billion) of net liquidity into the market through the medium-term lending facility.

He added that this step indicates that monetary policy will remain supportive to help in the economic recovery.

Elsewhere, the overall unemployment rate in urban areas surveyed was 5 percent in October, unchanged from September.

“Given the continuing growth headwinds from the real estate sector decline, still-fragile confidence and persistent financial risks, we expect the central government to materially intensify easing in the coming months,” Goldman Sachs said on Wednesday.

The Indian economy grew by 4.4 percent in the third quarter compared to the previous year, and enjoyed a flurry of activity due to the Diwali festival.

Vietnam’s GDP growth also accelerated in the third quarter, with a 5.33 percent expansion over the previous year driven largely by strong manufacturing and export activity.

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The growth in the third quarter also means that China is expected to need annual growth of just 4.4 percent in the fourth quarter to achieve its growth target of “around 5 percent” for the full year.

Ding Shuang, chief China economist at Standard Chartered Bank, said the Chinese economy may grow by 5.7 percent in the fourth quarter, bringing full-year growth to 5.4 percent.

He added that investment in real estate and infrastructure would not be the focus of any long-term stimulus, with the focus on high-tech consumption as well as services.

Additional reporting by Mia Nolimimaiti and J Seki