China‘s economy was less healthy in the third quarter than a recent spate of upbeat data suggest, with growth coming exclusively from manufacturing and property while the services and retail sectors faltered, a private survey showed.
Manufacturing posted its fastest expansion nationally, with 53% of companies seeing revenue gains, up 3% from a year earlier, a quarterly survey of more than 3,100 firms by China Beige Book International (CBB) showed.
While a government infrastructure building spree and housing boom have given a much needed boost to “old economy” firms from steel mills to cement makers, CBB noted foreign orders had also improved.
But “new economy” sectors – services, transportation and retail – showed weakness both quarter-on-quarter and year-on-year, with cash flow and profits deteriorating, leaving the country on uneven footing.
Services slowed and retail firms experienced one of their weakest performances in the history of the survey as e-commerce firms gobbled up more market share.
See also: Here’s How Much China’s Economy Is Expected to Grow in Q4
“The chief problem in China economic analysis remains the unwillingness to look behind dubious headline data,” authors Leland Miller and Derek Scissors wrote in a note accompanying the report.
“High-profile indicators such as GDP and the PMIs this quarter will rubber stamp the government’s recovery narrative, but only those with nothing on the line should accept this at face value.”
Official data for August raised hopes the economy was stabilising and perhaps even picking up, with industrial output, retail sales and property investment all quickening more than expected, while industrial profits grew at the strongest pace in three years.
But while the property sector showed another quarter of strong growth, there are signs that China‘s real estate boom is starting to stutter, the CBB report said.
Property sales revenue is uneven across the country, while companies’ cash flow weakened, prompting a spree of new borrowing that will likely add to worries about rapidly rising debt levels. Moreover, more and more cities are tightening restrictions on home purchases as prices soar.
In the services sector, growth weakened in every area aside from hospitality. Retailers with only brick-and-mortar stores saw no net revenue growth in the third quarter.
“Struggling retail and a property bubble is not the kind of stability many are touting,” the report said.