The 4.9% increase indicates that the country’s large industrial sector is in trouble. But exports and services look strong.

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Beijing-Steel mills are facing power outages. A shortage of computer chips has caused a slowdown in car production. Distressed real estate companies bought fewer building materials. The flood disrupted business in north-central China.

All this has caused losses to the Chinese economy, which is an important engine for global growth.

The National Bureau of Statistics announced on Monday that China's economy grew by 4.9% year-on-year in the third quarter; this period was significantly lower than the 7.9% increase in the previous quarter. Industrial output, the backbone of China's economic growth, has experienced a severe decline, especially in September, which was the worst performance since the beginning of the epidemic.

Two bright spots prevented economic stagnation. Exports remain strong. As China once again successfully quelled the small-scale coronavirus outbreak, families, especially wealthy ones, resumed spending money on dining and other services in restaurants in September. Retail sales in September increased by 4.4% year-on-year.

Chinese officials are showing signs of concern, even though they have not launched large-scale economic stimulus measures so far.

"Currently, uncertainties in the international environment are increasing, and the domestic economic recovery is still unstable and unbalanced," said Fu Linghui, spokesperson for the National Bureau of Statistics.

However, the government’s own efforts are part of the current economic challenge.

In recent months, the government has taken a series of measures to tackle income inequality and tame businesses, partly to protect economic health. But these efforts, including penalizing technology companies and preventing real estate speculation, also dragged down growth this quarter.

As part of a broader response to climate change issues, the government has also imposed restrictions on energy use. Now, power shortages are hurting industry, and the country is eager to burn more coal.

"The economy is sluggish," said Yang Qingjun, the owner of a corner grocery store in an old industrial area of ​​a shoe factory in Dongguan, near Hong Kong. The power outage prompted nearby factories to reduce operations and cancel overtime pay. The lives of local workers are more frugal.

"It's hard to make money," Mr. Yang said.

Urbanization used to be an important engine of China's economic growth. China has built spacious apartments for hundreds of millions of people in modern high-rise buildings, and China produces as much steel and cement as the rest of the world combined, or more.

Now, real estate—especially the debt accumulated by developers and homebuyers—is the main threat to growth. The country’s largest developer, China Evergrande Group, faces a severe cash shortage that has spread to the entire economy.

As suppliers are waiting for payment, some of the company's 800 projects have been suspended. Several smaller developers had to scramble to pay the bonds.

This may create a vicious circle in the real estate market. What is worrying is that developers may dump a large number of unsold apartments on the market, discouraging buyers to see how far prices may fall.

"Some developers have encountered certain difficulties, which may further affect the mood and confidence of buyers and cause everyone to postpone buying a house," said Zhang Ning, a senior economist at UBS.

The destiny of Evergrande is of broader significance to the long-term and healthy development of the economy.

Officials hope to send a message that bond buyers and other investors should be more cautious when lending to companies such as Evergrande and should not assume that the government will always be there to bail them out. But the authorities also need to ensure that the finances of suppliers, builders, home buyers and other groups will not be severely burned.

David Yu, a professor of finance at New York University's Shanghai campus, predicts that these groups "will be more complete than bondholders, that's for sure."

In recent weeks, as power shortages have spread in eastern China, regulators have cut off the power supply to energy-intensive companies such as chemical plants and steel plants to avoid sinking homes into darkness. This is a double blow to industrial production, which has also been hit by the weak construction industry.

Industrial production in September grew by only 3.1% year-on-year, the lowest level since March last year, when Wuhan City was still locked down due to the pandemic.

"To some extent, the power outage is more worrying than the Evergrande crisis," said Sara Hsu, a visiting scholar at Fudan University in Shanghai.

The Zhejiang Provincial Energy Bureau, a major industrialized coastal area in China, reduced the power supply of eight energy-intensive industries this fall, which process raw materials into industrial materials such as steel, cement, and chemicals. Together, they consume nearly half of the province's electricity, but only account for one-eighth of its economic output.

Shutting down the power of these industries may result in a shortage of industrial materials, which may affect the supply chain.

Economic reshaping. China is formulating new measures to change the way companies operate and limit the power of executives. Driven by the desire for state control and self-reliance, these changes marked the end of the gilded age of private enterprise, which made the country a manufacturing powerhouse and a nexus of innovation.

Chinese leader Xi Jinping is reshaping China's business world in his own image. Most importantly, it means control. Executives used to get the green light for growth at all costs, and now officials want to decide which industries are prosperous, which industries go bankrupt, and how it happens.

Many measures have been implemented. The Chinese government has strengthened supervision of the country’s Internet giants, declared all financial transactions involving cryptocurrencies illegal, and detained executives of troubled companies. At the same time, China's largest developer Evergrande is faltering, and there is no official news about the rescue.

Evergrande was overwhelmed by huge debts. The possible failure of Evergrande has exposed the flaws of China's financial system-uncontrolled borrowing, expansion and corruption. The company's crisis is testing the determination of Chinese leaders to reform as they open new paths for the economy.

What China will do next is of great significance. If Chinese officials rescue Evergrande, they may send a message that some companies are still too large to fail. If they do not, as many as 1.6 million homebuyers waiting for unfinished apartments and hundreds of small businesses, creditors and banks could lose money.

The long-term outlook is unclear. Some analysts say that Xi Jinping's measures and efforts to curb excessive borrowing have made a big difference. But the world’s second-largest economy is slowing down, and the Chinese government may need to work harder to reignite it.

Assembly plants in industries that use less electricity, such as automobile manufacturing, do not face the same demand for power outages. But they face other challenges.

The coronavirus outbreak in Southeast Asia has interrupted the supply of some auto parts. In addition, there is a shortage of semiconductors worldwide, which is a key component of automobiles.

Chinese market leader Volkswagen said on Friday that its output has been declining due to increasing chip shortages and other supply chain issues. The company does not have enough cars to meet customer and dealer orders, causing a backlog.

"Our priority is to resolve the backlog of work," said Stephan Wöllenstein, CEO of Volkswagen China.

For months, economists have made the same prediction: China’s rapid growth in exports will not last.

China's exports continued to maintain a strong momentum in the third quarter and grew strongly in September, an increase of 28.1% over the same month last year. China announced its third-highest monthly trade surplus in history last month.

Since the economy emerged from the pandemic last spring, China has basically maintained its export strength. When most people in the world stayed at home, families squandered consumer electronics, furniture, clothing, and other commodities produced in China.

However, the export boom is creating another tension between the United States and China.

U.S. Trade Representative Katherine Tai said in a speech two weeks ago that China’s export strength is partly the result of subsidies and other unfair practices. "For a long time, China's non-compliance with global trade norms has weakened the prosperity of Americans and the rest of the world," she said.

However, Chinese officials and experts believe that China’s success is the result of strong professional ethics and continued heavy investment in manufacturing. They were quick to point out that by keeping the pandemic under control in the early weeks of last year, China was able to quickly reopen factories and offices.

"Our supply is very strong, but demand is weak," said Tu Xinquan, executive director of the China World Trade Organization Institute at Beijing University of International Business and Economics. "So the company must export."