Despite the weaker-than-expected GDP performance, output expanded 0.7% in the year to date, meaning that the world’s second-largest economy regained all the ground it lost in the first half. Strong import growth in the third quarter may have dented the GDP number while still being a positive sign for overall output.

Market Focus

Financial markets focused on the disappointing year-on-year performance of third quarter GDP. The CSI 300 Index of large-cap stocks paired an advance of 1.2% to rise 0.5% as of 10:24 a.m. local time. Futures contracts of 10-year government bonds gained the most in nearly a month, suggesting traders are pricing in more risks ahead. The yuan trimmed its rise to trade little changed at 6.6984 per dollar.

Underpinning the recovery has been an aggressive containment of the deadly coronavirus that has allowed factories to quickly reopen and capitalise on a global rush for medical equipment and work-from-home technology — a dynamic that helped exporters win record market share in the seven months to July.

“One of the reasons that headline GDP missed expectations is probably a strong rebound in imports, which contributes negatively to GDP,” said Liu Peiqian, China economist at Natwest Markets Plc in Singapore. “That should not be viewed negatively, as strong growth in imports reflected recovery in underlying economic growth is strengthening.”

Shoppers have been more cautious, but robust spending through the recent Golden Week holidays suggest they too are starting to open their wallets again.

What Bloomberg’s Economists Say

“China’s recovery remains intact, even with a slower-than-anticipated pickup in 3Q GDP growth. The undershoot was caused by a service sector still struggling to shake off the virus impact. But the manufacturing sector leapt back to pre-pandemic levels of growth.”

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Chang Shu, chief Asia economist

The recovery has come with relatively restrained government borrowing and central bank easing compared to China’s peers. Instead, the government has focused on targeted support for business, a contrast to how it responded to the global financial crisis.

“China is supporting the world in a different way from what it did after 2008,” said Shen Jianguang, chief economist of e-commerce giant, JD.com. “A slowing economy means it could not afford another stimulus in 2020. Instead, it did its job by serving as the ‘supplier of last resort.’”

Central bank Governor Yi Gang said Sunday that China has “pro-active fiscal policy” and “an acommodative monetary policy to support the economy.”

“Right now, China has basically put Covid-19 under control,” Yi said in a webinar organized by the Group of 30. “In general, the Chinese economy remains resilient with great potential. Continued recovery is anticipated which will benefit the global economy.”

Growing Share

Analysis of International Monetary Fund data shows the proportion of worldwide growth coming from China is expected to increase from 26.8% in 2021 to 27.7% in 2025, according to Bloomberg calculations.

The IMF says Chinese growth is virtually the only reason it expects global output to be 0.6% higher by the end of 2021 compared to the end of 2019.

But the recovery isn’t without its holes. The economy was only 0.7% larger in the nine months through September than it was in the same period in 2019. At the start of the year the government expected full-year growth of around 6%.

And consumers have been slow to spend as they once did. Even with the virus under control, shoppers have spent about 9% less in the first eight months of the year compared to the same period last year.

It’s also unclear how durable the recovery will prove to be given domestic pressures from unemployment and rising corporate and household debt. China Evergrande Group, the world’s most indebted developer, has rattled investors amid fears for its financial health.

Much will also depend on how relations with the U.S. evolve after November’s presidential election. Any worsening of trade frictions could throw a spanner in the export revival. At the same time, the resurgent virus in Europe and the U.S. will complicate the global rebound and could impair China’s own recovery.

Getting the economy quickly back on its feet is crucial to China’s global ambitions. They were hammered home last week by President Xi Jinping during a tour of tech-hub Shenzhen, where he doubled down on calls to take the global lead in technology and other strategic industries.

Urging an “unswerving” commitment to technological innovation in a period of “changes unseen in a century,” Xi again promoted a need to become more self reliant, a policy that is expected to be a central part of a new 5-year economic plan that will be discussed at a Communist Party gathering expected later this month.

Read more: Bloomberg Trade Tracker Surges Back to Normal

That focus on driving growth in new economy sectors like consumption, technology and services means investment there is outstripping that in old sectors, making this cycle different from the credit and construction boom post 2008, noted Cui Li, head of macro research at CCB International Holdings Ltd. in Hong Kong.

“An industrial cycle led by the economic upgrade and the absence of a large credit expansion will make this growth recovery more sustainable,” she said. “The Chinese recovery will sustain.”