In response to a property crisis and weak domestic demand, China has increased infrastructure spending and invested heavily in high-tech manufacturing.
In the second quarter, China’s economy developed considerably more slowly than anticipated due to a prolonged housing crisis and job uncertainty that reduced domestic demand and raised concerns that Beijing would need to implement even more support.
According to official figures, the second-largest economy in the world grew by 4.7% in April-June, which was slower than any quarter since 2023 and less than the 5.1% analysts’ projection in a Reuters poll. Additionally, it was less than the 5.3% growth in the preceding quarter.
Lynn Song, chief economist for Greater China at ING, stated, “Overall, the disappointing GDP data shows that the road to hitting the 5% growth target remains challenging.”
He further added, “A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost cutting is dragging consumption and causing a pivot from big ticket purchases toward basic ‘eat, drink and play’ theme consumption.”
Stocks and the Chinese yuan declined in the wake of the disappointing statistics.
The data coincides with Beijing’s attempts to fortify economic confidence ahead of the much-awaited third plenum, a crucial leadership gathering that gets underway on Monday. Nevertheless, those efforts are complicated by competing demands to increase growth and reduce debt.
The government wants to increase the economy by about 5.0% by 2024, but many economists think this is an unrealistic goal that would call for additional stimulus.
Growth over the previous three months was downwardly lowered to 1.5%, but it came in at 0.7% on a quarterly basis.
In response to a property crisis and weak domestic demand, China has increased infrastructure spending and invested heavily in high-tech manufacturing.
According to China’s National Bureau of Statistics, the economy faced growing global uncertainties and domestic challenges in the second half of this year, even if adverse weather contributed to some of the growth hit in the second quarter.
China’s economy has grown unevenly as a result of industrial output exceeding domestic consumption, which has increased local government debt and fueled deflationary risks during the real estate slump.
Although strong Chinese exports have helped somewhat, growing trade tensions are now a worry.
A different report released on Monday broadly confirmed those patterns, with manufacturing output growth above estimates in June but still declining from May, and retail sales growth falling short of projections.
This comes after statistics earlier this month showed China’s imports unexpectedly falling 2.3% and exports rising 8.6% from a year earlier in June. This suggests firms are frontloading orders in order to avoid tariffs from trading partners.
Meanwhile, consumer prices fell short of forecasts and manufacturing deflation continued.
ANZ senior China strategist Xing Zhaopeng stated, “The weak retail sales are the standout among all the monthly figures released today.”
June retail sales increased by 2.0% year over year, falling short of the poll’s predicted 3.3% gain.
“Household consumption remains very weak…with employers slashing salaries and high youth employment, households will still be cautious going forward,” Xing stated.
More suffering befell China’s shattered real estate market, as new home prices in June dropped at their fastest rate in nine years and continued to struggle to find a bottom in spite of government assistance efforts.
In the first half of 2024, real estate investment dropped 10.1% from the previous year, while house sales by floor area dropped 19.0%, which was a greater decline than the 20.3% decline in the first five months of the year.
Last month, Pan Gongsheng, the governor of China’s central bank, promised to maintain a supportive monetary policy stance.
According to Reuters polled analysts, China’s prime rate for one-year loans will drop by 10 basis points, while the reserve requirement ratio for banks would by 25 basis points in the third quarter.
Citi analysts predict that following a meeting of the Politburo, the highest decision-making body of the ruling Communist Party, which is anticipated in late July, the government will implement yet another round of property-supporting measures. Local state-owned businesses were permitted by the authorities to purchase unsold completed homes in May, and the central bank established a 300 billion yuan financing facility for affordable housing.
