Correction to China Third-Quarter GDP Rises 6.8% From a Year Earlier -- 2nd Update On Wednesday

By Lingling Wei Features Dow Jones Newswires

China's economy expanded at a robust 6.8% pace in the third quarter, meeting market expectations, as traditional growth drivers such as manufacturing and exports gained steam.

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The strong showing is welcome news for Communist Party leaders gathering for a twice-a-decade conclave in Beijing. To prepare for the event, which is expected to strengthen President Xi Jinping's reign over the nation for years to come, various levels of government have for months mounted massive efforts to keep the world's second-largest economy on an even keel.

The third-quarter pace slowed from 6.9% in the second quarter, though it puts the full-year target set by the leadership for growth of about 6.5% well within reach. Adding to a sense of optimism in official circles, China's central-bank Gov. Zhou Xiaochuan said just days ahead of the political conclave that second-half growth could reach 7%.

Increased industrial activity and higher commodity prices were major reasons behind the strong growth. The latter, partly a result of policies to cut overcapacity, benefited state-owned manufacturers in particular. That is because the capacity cuts led to the closures of many private firms, especially in industries like coal and metals.

Recovering global demand also helped, giving China some economic breathing room, which has meant an economic slowdown that many expected hasn't materialized.

Industrial production, a main gauge of manufacturing activity, rose 6.6% in September from a year earlier, according to data released Thursday by the National Bureau of Statistics. Retail sales jumped 10.3%, though the pace of growth slowed from the first half of the year, indicating consumers have grown wary of opening their wallets.

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Analysts say increased output was largely driven by state firms that have seen a sharp rebound in profits this year. In the first nine months of 2017, according to official data, large state firms controlled by the central government--which dominate China's smokestack industries--saw their profits jump 18.4% from a year earlier to 1.1 trillion yuan ($167 billion).

Still-solid property investment, despite government efforts to cool the housing market, has also increased demand for steel, furniture and other materials, helping to lift profits in the manufacturing sector. Meanwhile, a global economic recovery has helped Chinese exporters.

This doesn't mean China has entered a new cycle of accelerating growth, economists warn. To keep near-term growth steady, Beijing has delayed fixing some of its long-running problems, such as industrial overcapacity and excessive debt. That, in turn, economists say, means risks for a prolonged slowdown in the economy are rising, not declining.

In a speech Wednesday that marked the opening of the party congress, Mr. Xi laid out a sweeping plan to transform China into a strong global power that stresses expanding the party's control over the economy and all other corners of the nation. But unlike his predecessor, who said China's national income would double over a decade, Mr. Xi outlined his vision without specifying a broad target for economic expansion, even as he reaffirmed Beijing's commitment to development.

The omission indicated "a subtle de-emphasizing of specific growth targets," said UBS China economist Wang Tao. Ms. Wang projects that the government will soften its growth target slightly for next year.

But to tackle the economy's long-term ills, some analysts say, Beijing may need to significantly lower its annual growth targets. So far, there have been few signs that the government is willing to accept the trade-off.

A recent survey by China Beige Book, a data provider that tracks China's economy, of more than 3,000 Chinese companies shows that from July through September, hundreds of coal, steel, aluminum and copper companies reported a sixth straight quarter of overall capacity rising, not falling. Meanwhile, after a brief slowdown in credit growth, Chinese banks handed out more loans last month, indicating Beijing's preference for near-term stability over any drop in economic activity.

"This will not persist," said Yukon Huang, a former country director at the World Bank in China, referring to the near-term recovery of China's economy.

"Long-term growth depends on more fundamental drivers such as productivity growth," said Mr. Huang, who is now a senior fellow at the Carnegie Endowment for International Peace. "That hasn't happened yet."

Write to Lingling Wei at lingling.wei@wsj.com

Corrections & Amplifications

This item was corrected on October 19, 2017 at 0322 GMT to reflect that Xi Jinping delivered a speech Wednesday, not Thursday, that marked the opening of the Communist Party congress.

Xi Jinping delivered a speech Wednesday that marked the opening of the Communist Party congress. "China Third-Quarter GDP Rises 6.8% From a Year Earlier -- 2nd Update," at 10:48 p.m. Eastern time on Oct. 18, misstated the day in the 10th paragraph.

(END) Dow Jones Newswires

October 18, 2017 23:32 ET (03:32 GMT)