China's economic growth is the weakest since 2009, the government is taking steps to boost confidence

BEIJING (Reuters) – China's economic growth has slowed at its weakest pace since the global financial crisis of the third quarter, as regulators promised additional support in the form of a multi-year campaign aimed at to reduce the risks associated with debt and the trade war with the United States.

The Chinese authorities are trying to overcome many challenges, as fears of the trade war have led to a collapse in domestic stock market sales and a sharp decline in the value of the yuan against the dollar, reinforcing the concern over growth prospects.

The economy grew 6.5% in the third quarter year-on-year, down from 6.7% in the second quarter, the National Bureau of Statistics said Friday. Analysts polled by Reuters forecast a 6.6% growth in the economy between July and September.

GDP reading was the weakest quarterly growth of one year on the other since the first quarter of 2009 at the height of the global financial crisis.

"The slowdown trend is getting stronger despite the Chinese authorities' commitment to encourage domestic investment to support the economy. Domestic demand has turned out to be lower than unexpected exports, "said Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities in Tokyo.

After another major decline in Chinese stocks on Thursday, policymakers sought to calm markets, as central bank governor Yi Gang said stock valuations did not fit the economic fundamentals.

Yi and senior regulators have announced targeted measures to alleviate corporate finance problems and encourage commercial banks to increase lending to private companies.

The Shanghai Composite .SSEC index, which fell by more than 1% at the start of trading, bounced back after comments to stabilize at the midday break.

The lowest factory output since February 2016 in September dampened third quarter growth, as automakers reduced production by more than 10% due to slower sales.

"The figure of 6.5% is well below our consensus expectations. The weaknesses come largely from the secondary sector, particularly manufacturing. We could review our forecasts for the fourth quarter, "said Betty Wang, chief economist for China at ANZ in Hong Kong.

On a quarterly basis, growth slowed from 1.7% revised in the second quarter to 1.6%, in line with expectations.

It is important to note that sequential growth in the second quarter was revised downward from the previously announced 1.8%, suggesting that the economy was less dynamic in the second half than expected many analysts.

Recent economic data has revealed a weakening of domestic demand, marked by a slowdown in factory activity, investment in infrastructure and consumer spending, since a multi-year crackdown on loans and debt more risk has led to higher corporate borrowing costs.

Before the data was released, economists were expecting China's growth to reach 6.6% this year, which easily matches the government's target of 6.5%, and 6.3%. 'next year.

But some now say that growth could slow down even more strongly next year.

"In the future, the economic outlook is not optimistic, with exports facing new hurdles as US tariffs come in and demand from emerging countries declines. GDP growth is expected to slow to between 6.0 and 6.2 percent next year, "said Nie Wen, an analyst at Hwabao Trust Shanghai.

Chinese manufacturers, once very promising, are now suffering the collapse of consumer spending. Last week's data showed that car sales dropped the most in nearly seven years in September.

GM (GM.N) saw their sales fall by 15% during the month and Volkswagen (VOWG_p.DE) sales decreased by 10.5%.

Wartime session

Beijing and Washington have slapped each other for the past few months, following US President Donald Trump's call for radical changes to China's intellectual property, industrial subsidies, and trade policies.

Bilateral trade talks aimed at resolving the dispute have come to a standstill, triggering a rout of domestic equities and exerting pressure on China's weak economy and weakening currency.

Surprisingly, China's exports went into high gear in September, largely due to companies sending larger charges to avoid US duties, but analysts say the pressure will rise in the coming months .

"We expect a negative impact of the commercial tension more clearly in the data after the start of the new year," said Hirayama, of SMBC's Nikko Securities.

Separate data released on Friday showed China's industrial production growth weakened to 5.8 percent in September from a year earlier. Forecasts were lacking as capital expenditures grew slightly faster than expected at 5.4% in the first nine months of the year.

Infrastructure investment increased 3.3% year-over-year between January and September, representing growth of less than 4.2% in the first eight months of the year.

Retail sales rose 9.2% in September over the previous year, rebounding after several months of sluggish growth.

In the face of a slowing economy, stock market fluctuations and pressure on the Chinese currency, policymakers are increasingly focusing on reducing risks to growth by gradually easing monetary and fiscal policies.

Last week, Central China announced the reduction of its fourth reserve requirement ratio (RRR) this year, accelerating the reduction in financing costs.

Moreover, according to analysts, China begins to bear the brunt of the trade dispute with the United States.

"China is pulling all the levers to support domestic demand against this trade pressure. There is already a strong acceleration of outstanding loans and the PBOC is announcing new measures. "

"In the end, China will do what it takes to protect its economy and show the United States:" Hey, we do not need you. "