The Chinese economy in the second quarter of the current year showed growth, the pace of which was lower than the dynamic expected by experts.
In April-June of the current year, the mentioned Asian country’s economic system grew by 4.7%. The National Bureau of Statistics published the relevant information on Monday, July 15. It’s worth noting that the growth rate of the Chinese economy, which is the second largest in the world, in the current year’s second quarter turned out to be the slowest since the first quarter of 2023. Also, the result for April-June 2024 is more pessimistic than the preliminary expectations of experts. Analysts interviewed by the media predicted that the Asian country’s economic system would show growth of 5.1% in the second quarter of the current year.
It is also worth noting that in China there is an objective and obvious deterioration of the dynamic of the local economy. For example, in the first quarter of the current year, the situation was more positive. In January-March 2024, the Chinese economy grew by 5.3%. At the same time, the positive momentum still persists, but its significant weakening is an objective fact that is not subject to various kinds of doubts and critical rethinking.
The Chinese economic system continues to be on an upward trajectory, even though the growth rate has slowed down, during a period of active impact on its condition of negative circumstances and adverse factors. Currently, the downturn is being observed in the real estate sector of the Asian country, which has proved to be long-lasting and may eventually turn out to be fundamental in terms of long-term consequences. Also in China, such a situation in the labor market is now being fixed which is characterized by an extremely low level of stability. Against this background, the opinions of experts are strengthening, who believe that Beijing needs to take more measures to stimulate the growth of the world’s second-largest economy.
The corresponding point of view has already been circulated among analysts, but the statistics released on Monday are likely to strengthen its status as the most constructive and appropriate.
It is worth noting that Beijing is currently facing the problem of uneven economic recovery. Many experts had high hopes for 2023. The corresponding forecasts and expectations were based on the generally logical assumption that China’s rejection of the zero-tolerance policy towards coronavirus, which provides for various kinds of restrictions in the business environment and the industrial sector, will contribute to rapid economic growth. Reality did not confirm this optimism, which turned out to be excessive. Last year, the world’s second-largest economy still grew by 5.2%, but preliminary expectations regarding the pace of the corresponding process were more ambitious. At the same time, the mentioned indicator is higher than the global average. For example, the United States economy grew by 3.1% in 2023.
The economic growth target set by the Chinese leadership for 2024 is around 5%. There is a widespread opinion among experts that Beijing’s mentioned goal is realistic. For example, in May, the IMF released an updated version of its forecast for the growth of the Chinese economy in 2024, which provides that the corresponding figure will be exactly 5%. It is possible that after the data on the economic dynamic in the Asian country in the second quarter of the current year are released, the mentioned and many other forecasts will be revised downwards. It is worth noting that the vision of the relevant prospects has already deteriorated by some experts. On Monday, Goldman Sachs released a new version of its forecast for China’s economic growth. Experts of this financial institution expect that the mentioned growth for the current year will be recorded at 4.9%. The previous version of the Goldman Sachs forecast provided that the Asian country’s economy would rise by 5% in 2024. In a note by experts of the mentioned bank led by Lisheng Wang, it is noted that to counteract weak domestic demand, Beijing needs to ease monetary policy by the end of the current year. According to them, appropriate measures are especially necessary for the fiscal and housing fronts.
Currently, in the context of assessing the further prospects for changing the condition of the Chinese economy, a particular concern is related to the consumer sector. In the mentioned sector, retail sales growth slowed to an 18-month low in June. The corresponding state of affairs is related to deflationary pressure, against which businesses were forced to revise their pricing policy downward. It’s worth noting that this tendency affected all categories of goods, including, for example, the cost of cars, food, and clothing.
Lynn Song, chief economist for Greater China at ING, says that disappointing data on the gross domestic product (GDP) of the Asian country for the second quarter of the current year indicate that the path to growth of 5% remains challenging. According to the expert, the negative impact on the wealth of Chinese residents associated with falling real estate and stock prices, and also due to low wage growth against the background of reduced spending in various segments of the economic system, forms a source of adverse exposure to consumer activity and causes a pivot from big-ticket purchases towards so-called basic eat, drink and play theme consumption.
It is also worth noting that the crisis in the Asian country’s real estate sector, which has been going on for several years, has been intensifying in recent months. In China, new home prices have fallen. In May, the corresponding indicator decreased by 0.7% compared to the data for April. The specified dynamic of the decline in the Asian country’s real estate sector as of May was recorded for the 11th month in a row. Moreover, the drop in prices for the mentioned month turned out to be the sharpest since October 2014, as reported by the National Bureau of Statistics.
On an annual basis, the cost of new housing decreased by 3.9% in May. The Chinese real estate sector, which in the past was the main driving force behind the growth of the Asian country’s economy, has been in the condition since about the middle of 2021, which can be described as an existence that carries out something like a movement from one urgent crisis to another against the background of a constant negative state of affairs, which has become something like the main content in recent years. Notable manifestations of this situation, which is on a steady trajectory of deterioration, are periodic defaults by developers and the suspension of projects in the construction area.
It is worth noting that the Chinese authorities are making efforts to prop up the real estate sector. For example, as part of the relevant measures, Beijing has allocated financing for 300 billion yuan ($41.35 billion) to clear massive housing inventory, easing mortgage rules and cutting down payments. At the same time, the state of affairs in the real estate sector continues to demonstrate the dynamic of deterioration. Against the background of this situation, consumer confidence is falling and the ability of municipal authorities, faced with the burden of debts, to receive new funds through land sale activities is limited.
It is widely believed among experts that within the framework of the meeting of China’s main economic leaders, which will be held this week in Beijing, the main topics for discussion and the formation of concrete solutions will be reducing the volume of debt and boosting confidence. With a high degree of probability, in this case, the path to a positive result will be very difficult.
It is worth noting that Beijing has already made certain decisions aimed at improving the situation related to weak domestic demand. In this case, investments in infrastructure are meant. Moreover, Beijing has decided to allocate large amounts of funds to the high-tech manufacturing area.
The growth of industrial production in the Asian country in June amounted to 5.3% year-on-year. It is worth noting that the analysts surveyed by the media expected that the corresponding figure would increase by 5%. Also in June, the high-tech manufacturing sector in the Asian country showed an 8.8% rise in value added.
The yuan and Chinese stocks showed a decline amid disappointing data on the dynamic of the Chinese economy in the second quarter of the current year. At the same time, it is worth noting that these indicators quickly changed the vector of movement, finding themselves on an upward trajectory. The change in tendencies is because investors have placed bets on additional measures by Beijing aimed at stimulating the economy.
China’s leadership is seeking to bolster economic confidence at the third plenum, the main leadership meeting starting this week. At the same time, it is worth noting that Beijing faces complex and ambiguous tasks in the context of their interrelationship with each other. The Chinese leadership needs to stimulate economic growth and decrease the amount of debt. The solution of the relevant tasks provides for different measures of action.
The National Bureau of Statistics noted that bad weather conditions partially had an impact on the dynamic of economic growth in the second quarter of the current year. Also in this context, it was noted that in the second half of 2024, the economy of the Asian country faced such negative circumstances as increased external uncertainty and internal difficulties.
The growth of the world’s second-largest economy is characterized by excessive unevenness. Industrial production in the Asian country is outpacing domestic consumption. Against the background of the mentioned circumstances, the decline in prices in the real estate sector, and the increase in the debt of municipal authorities, the risks of implementing a deflation scenario are increasing.
The positive export performance of the Asian country provided some support to the Chinese economy. At the same time, in this case, there is such a factor of potential negative impact as an increase in tension in the international trade space. To a certain extent, the mentioned state of affairs is due to the deterioration of the situation in the plane of geopolitical relations. For China, tensions in the international trade space are a threat from the perspective of economic growth prospects.
In June, shipments of goods and services from the Asian country showed an increase of 8.6% year-on-year. At the same time, Chinese imports in the mentioned month fell by 2.3% compared to the figure for the same period in 2023.
Data on the export activity of the Asian country in June indicate that manufacturers are frontloading orders in advance. The relevant actions are aimed at getting ahead of tariffs from trading partners.
Retail sales in China in June showed an increase of 2% year-on-year. These rates of the upward dynamic of the mentioned indicator turned out to be the slowest since December 2022. At the same time, there is no guarantee that the corresponding tendency of slowing growth rates will continue in the foreseeable future.
Xing Zhaopeng, senior China strategist at ANZ, says that among all the statistical figures that were published by the Asian country authorities, weak retail sales are the most noticeable. In this context, the expert also noted that the consumption volumes demonstrated by households in the Asian country remain very low. Moreover, Xing Zhaopeng drew attention to the fact that employers in China are currently cutting salaries. Besides, the expert noted that youth unemployment in China is at a high level. Xing Zhaopeng expects Asian households to continue to be cautious in consumption in the future.
In June, China’s urban unemployment rate did not change, remaining at the same level of 5%. The unemployment rate among local youth in June is still unknown. It is worth noting that in May the corresponding figure was fixed at 14.2%.
In the first half of 2024, the average per capita disposable income of urban residents in China was 27,561 yuan. On an annual basis, the corresponding indicator increased by 4.6%. The disposable income of rural Chinese residents in the first half of the current year amounted to 11,272 yuan. This indicator is 6.8% higher than the figure for the same period in 2023.
In the first half of 2024, the volume of investments in the Chinese real estate sector decreased by 10.1% year-on-year. Over the same period in the Asian country, home sales by floor area fell by 19% compared to the result for the first half of 2023.
Pan Gongsheng, Governor of the People’s Bank of China, last month pledged to stick to a supportive monetary policy stance to boost growth in the world’s second-largest economy.
Analysts interviewed by the media predict that in the third quarter of the current year, the Asian country will cut the one-year loan prime rate by 10 basis points. They also expect banks’ reserve requirement ratio to be low by 25 basis points in the mentioned quarter in China.
Citi analysts predict that after the Politburo meeting, which is expected at the end of the current month, the Chinese government will begin another round of property-supporting measures. In May of the current year, the central political leadership of the Asian country allowed local state-owned enterprises to buy unsold completed homes.
Harry Murphy Cruise, economist at Moody’s Analytics, says that the chances of reforms by Beijing are high, but at the same time noted that the likelihood of a broad scale of appropriate measures is low. The expert says that making serious changes to the policy can be interpreted as a sign of the fallacy of previous decisions and can potentially cause reputational losses. Harry Murphy Cruise expects the Asian country to only just scrap through to achieve an economic growth target of about 5% for 2024.
Bruce Pang, chief economist and head of research for Greater China at JLL, expects that the plenary session will be able to boost confidence and stabilize expectations. The expert also predicts that the pace of economic growth in the Asian country will slow down in the second half of the current year.
Xiaojia Zhi, an economist at Credit Agricole CIB in Hong Kong, says that the Chinese government needs to strengthen policy support to achieve an economic growth target of about 5% in 2024. The expert also noted that the growing probability of Donald Trump’s victory in the presidential elections in the United States means that the Asian country will need additional poliсн efforts to increase domestic demand promptly since there are risks of a decrease in external demand.
