Economists expect a 0.1 percentage point drop in third-quarter GDP, to 6.6 per cent from 6.7 per cent in the previous quarter. This would be China's lowest rate of economic growth since immediately after the global financial crisis in 2008.

The slowdown, while not significant, would mark a new phase in China's gradual retreat from the heady growth of the past decade, in which the country's economy doubled in size. Investors in Australia will be watching closely for any sign of a threat to China's demand for commodities, but also for the impact on the Australian dollar - which strategists say will fall if the data is weaker than expected.

Liu Xuezhi, an economist with China's Bank of Communications. said a slowdown to 6.6 per cent was not being driven by the tariffs but a softening in domestic demand, investment and consumption. He said there would be a bigger impact, of 0.4 to 0.5 percentage points in 2019, once the full force of the tariffs was implemented.

"In the fourth quarter, we will see some impact. However, it won't be obvious," he told The Australian Financial Review.

Donald Trump's trade tariffs will not be felt until next year. Oliver Contreras

"We will have increasing pressure from the trade war in 2019. China will take a more proactive fiscal policy and invest more in infrastructure," he said.

The combination of US tariffs and lower growth in investment and consumer spending puts further pressure on Beijing's campaign to reduce debt. China will also release industrial production and retail sales data for the same period on Friday.

There is growing evidence that China's local governments are ramping up infrastructure spending to stimulate the economy. Authorities in Anhui in central China have been told to fast-track infrastructure projects originally scheduled to start in the first half of 2019, Chinese financial news magazine Caixin reported this week. The same region suffered a 17.6 per cent drop in infrastructure investment earlier this year.


In a report out this week, S & P said local governments' debt kept off balance sheet could be as a high as 40 trillion yuan or more. It also questioned the governments' ability to service those debt obligations..

Chinese President Xi Jinping...Beijing will not tolerate any evidence the US president's trade war is a threat to the country's economic stability. AP/Mark Schiefelbein

"While firm plans are needed to reduce these off-balance-sheet sets, progress has been limited so far," S & P Global Ratings credit analyst Gloria Lu wrote. "The potential amount of debt is an iceberg with titanic credit risks."

Property market cools

China's property market is also showing signs of cooling. The have been a string of protests by furious investors around the country after developers offered sharp discounts on residential apartments, reducing the value of investments by people who had bought at the inflated prices, according to local media reports. Developers such as Country Garden are reportedly offering discounts of up to 30 per cent on properties.

The People's Bank of China, the country's central bank, on Sunday cut by 100 basis points the amount of reserves the country's domestic banks must hold. It was the fourth reduction in just over a year. The move injected about 750 billion yuan into the local economy. Economists are now predicting further loosening, along with tax cuts, aimed at stimulating investment by companies.

Capital Economics's China economist Chang Liu said a slowdown in China's broad credit growth in September only added to the downside risks, increasing the chances of further loosening by the country's central bank.

The slowdown, while not significant, would mark a new phase in China's gradual retreat from the heady growth of the past decade.

"We think that policymakers will soon need to turn to other measures, such as cuts to benchmark interest rates or a relaxation of constraints on off-budget local government borrowing, in order to shore up credit growth and economic activity," he said.