China’s economy risks sitting on hold for too long

By Ka Sing Chan

HONG KONG, Oct 20 (Reuters Breakingviews) - Chinese planners have to prove their credentials more than ever. For the past couple of years they refrained from a big stimulus package to get the masses spending even as the fallout from the property collapse buffeted the economy. Now trade tensions are taking their toll. It raises the stakes for President Xi Jinping's new five-year plan due this week.

The world’s biggest exporter had weathered Washington’s tariff war well in the first half of the year. The slowing of GDP growth to 4.8% in the three months to the end of September suggests cracks are starting to appear, however. The same economists who predicted that drop in a Reuters poll expect economic expansion to slow to around 4.3% in the fourth quarter and beyond.

At the start of this year, Beijing warned against “external shocks” on growth and vowed to boost domestic demand in response. Exports still grew 7.1% in the first three quarters as manufacturers turned to other markets in Europe and Asia. And Chinese officials are keen to stress the economy's nine-month track record by pointing out it grew 5.2%, implying it's on track to hit the official growth target for the year of “around 5%”. Yet consumption has been less of a bright spot. Retail sales only expanded 4.5% in the same period, cooling to 3% last month.

The People’s Bank of China reinforced this wait-and-see approach to stimulus on Monday by keeping its one-year loan prime rate CNYLPR1Y=CFXS, a benchmark for most corporate loans, unchanged for the fifth consecutive month.

Equity investors might not be as patient. A policy salvo unveiled a year ago, including measures to reinvigorate confidence, fuelled a 26% rally in the A-share market. That has helped negate much of the “China is uninvestable” narrative, which was popularized by a JPMorgan report in 2022. Yet shareholders have since been looking for more stimulus, especially for measures to boost demand.

Expectations have been mounting ahead of Chinese leaders huddling this week in a closed-door session to flesh out their 15th five-year development plan for the People’s Republic. The previous one, which ran from 2021 to 2025, expanded the world’s second-largest economy from $14.5 trillion to $18.9 trillion on the back of a 5% annual growth. Yet household consumption accounted for just 36% of GDP as of September.

Planners’ chief task is likely to ensure that the annual 5% growth rate remains achievable through the end of the decade. Yet the pressure is growing on them to prove that a consumption-driven economy can also be a planned one.

CONTEXT NEWS

China’s gross domestic product in the three months to the end of September grew 4.8% year-on-year, the National Bureau of Statistics said on October 20. That was in line with expectations projected by a Reuters poll of 45 economists. The $19 trillion economy grew 5.2% in the first three quarters of 2025, the Chinese government said.

In a policy decision on October 20, the People’s Bank of China kept the one-year loan prime rate, a benchmark for most new loans, unchanged at 3.5% for the fifth consecutive month.

The ruling Central Committee of China’s Communist Party will hold a closed-door meeting from October 20 to October 23 to discuss the country’s 15th five-year development plan that runs from 2026 to 2030.

Trade tensions are likely to hit China's economic growth