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Beijing: China grew at its slowest pace since the global financial crisis in the September quarter and risks missing its official target for the first time in 15 years, adding to concerns the world’s second-largest economy is becoming a drag on global growth.

A pick-up in factory output and government confidence that the labour market remains stable were offset by further slowing in the property sector, and economists remained divided on whether or not authorities would step in with major stimulus measures such as interest rate cuts.

China’s gross domestic product (GDP) grew 7.3% in the third quarter from a year earlier, official data showed on Tuesday, the weakest rate since the first quarter of 2009.

That was slightly above the 7.2% forecast by analysts but slower than 7.5% in the second quarter, and even then some economists were surprised.

“It’s hard to square the GDP print with the industrial production numbers for the quarter," said Andrew Polk, economist at the Conference Board in Beijing, one of the more pessimistic research houses on the Chinese economy.

“There are confusing things going on. You have credit growing at the slowest pace since 2002. You have real estate investment slowing on a monthly basis and you have industrial production averaging slightly above 8% on a quarterly basis, slightly down from Q2. With that being the most reliable component of GDP on a quarterly basis, 7.3% seems a bit high to me."

Job market is key

The data added to expectations that growth will come in below the official 2014 target of 7.5%, which would be the first miss since 1999.

Premier Li Keqiang has stated repeatedly that authorities will tolerate growth slightly below target as they try to reshape the economy so it is driven more by domestic consumption and less by exports and investment.

Li has indicated that the leadership’s bottom line is maintaining employment to ward off social unrest, a policy priority. The government has said growth of 7.2% is needed to keep employment steady.

“Although economic growth has slowed in the third quarter, our employment and inflation situation are generally stable, which means the economy is still operating in a reasonable range," statistics bureau spokesperson Sheng Laiyun said.

Private and official business surveys have suggested pressure on employment for much of the year, though there have been no reports of widespread layoffs.

Property headwinds

A weakening property market continued to weigh on broader activity in the third quarter, with revenue from property sales revenue and new construction tumbling in the first nine months of 2014, blunting the impact of earlier stimulus measures and a long-awaited pick-up in exports.

“The weakest part of China’s economy is still the property sector," said Wang Tao, analyst at UBS in Hong Kong.

“The government has relaxed some controls recently and property sales may pick up in the fourth quarter. However, we may not see improvement in sectors like heavy industry and we expect the economy to continue to slow down."

With house price declines spreading to a record number of cities and new construction tumbling, the government last month cut mortgage rates for some home buyers for the first time since the global financial crisis.

Few bright spots

Other data showed factory output rose 8% in September from a year earlier, beating expectations and marking a recovery from August’s six-year low of 6.9%.

But that appeared to be the lone bright spot. Fixed asset investment, an important driver of the economy, was weaker than expected, as were retail sales.

That followed data last week which showed inflation cooled to a near five-year low, highlighting sluggish domestic demand and a lack of pricing power for firms.

“While we do not see China will fall into a ‘hard landing’ scenario, we do see the risk of deflation is rising sharply," ANZ economists said in a note.

The statistics agency downplayed that risk, saying there was no danger that consumer prices would fall in coming months.

While authorities have offered a steady stream of aid to more vulnerable sectors of the economy, they have ruled out massive stimulus as the country is still struggling with a mountain of debt, the hangover from 4 trillion yuan ($650 billion) of stimulus rolled out during 2008/09 global crisis.Government economists at top think tanks have said that if growth looked like dropping below 7%, authorities may take bolder and broader steps such as interest rate cuts.

“Today’s numbers don’t really suggest they have to do a big stimulus," said Tim Condon, ING’s head of Asian research in Singapore.

“They can continue targeted measures. They’ve done quite a bit in the last couple of weeks. Maybe that’s enough." Reuters

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