BEIJING (Reuters) - Consumption is driving China's economic growth, but a further slowdown in income growth in the third quarter highlights the challenges to the country's transition away from manufacturing and heavy industry.

Per capita disposable income in China rose 6.3 percent year-on-year in the January to September period to 17,735 yuan ($2,6314), data from the statistics bureau show, down from 6.5 percent growth in the first half of the year and the slowest since 2013, the year in which the data was first released. Incomes rose 7.7 percent a year ago.

Maintaining strong per capita income growth faces increasing difficulty, a National Statistics Bureau (NBS) official wrote in a commentary on Thursday, with special attention needed for migrant workers and employees displaced by the state-ordered closure of excess production capacity.

Indeed, migrant workers' incomes rose only 5.9 percent in the first nine months of the year, with momentum for future growth looking weak.


"Related departments and regions should step up work to ensure basic necessities and re-employment for those that have lost jobs, in order to lessen the negative impact of industrial restructuring on incomes," wrote NBS official Wang Pingping.

NBS spokesman Sheng Laiyun acknowledged there is some pressure from slowing income growth, citing already high migrant worker wages and falling prices of farm products, which hurt farmers' earnings.

"The government is looking for ways to stabilize growth in household incomes," Sheng told reporters at a briefing.


A breakdown in economic growth by industry issued on Thursday highlighted a relatively strong consumer and services sector, but also found new weakness in other areas.

China reported on Wednesday that its economy expanded by 6.7 percent in the third quarter, in line with expectations, with over 70 percent of growth coming from consumption.

Growth in the retail and wholesale sector accelerated to 7.0 percent for July-Sept from 6.5 percent in the second quarter as China's consumers kept spending, Thursday's data showed.

China's red-hot property market grew 8.8 percent in the third quarter, unchanged from the second quarter. The real estate sector was the fastest growing segment of the economy, along with "other services", which also grew 8.8 percent. Other services includes many consumer services such as media and education, but also scientific research, social services and utilities.

Economists believe the greatest near-term risk for China is a possible correction in the high-flying property market, which accounts for about 15 percent of GDP, as more than 20 cities have introduced measures to restrict home purchases after prices this year skyrocketed in many markets - especially top-tier cities.

The financial industry grew 5.6 percent in the third quarter, faster than 5.3 percent in the second quarter but slower than some analysts had expected considering the low base created by a market crash in the year-ago period.

"(Financial services) is lower than what I expected, a downside surprise. It doesn't seem to be consistent with the stock market performance in the third quarter, which seemed to recover," said Raymond Yeung, chief Greater China economist for ANZ in Hong Kong.

Growth in the construction sector also slowed in the third quarter, to 6.0 percent from 7.3 percent in the second quarter, as new housing starts fell 19.4 percent in September.

A weaker property market, along with slower auto sales after a tax incentive expires this year, present the biggest challenges to growth, says JP Morgan chief China economist Haibin Zhu.

"Growth momentum is still trending downwards - the fourth quarter will be even weaker. If the government wants to stick to the 6.5 percent growth target, 2017 will be more challenging," Zhu said in an interview.

($1=6.7394 Chinese yuan renminbi)

(Reporting by Elias Glenn and Kevin Yao; Editing by Eric Meijer and Clarence Fernandez)

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