China’s economic growth for the second quarter came in at 4.7 per cent year on year, as per official data released on Monday, underscoring slower progress than the previous quarter’s 5.3 per cent increase. Forecasts from Reuters, based on economists’ predictions, had expected a 5.1 per cent rise.
The slowdown comes amidst challenges such as weaker consumer demand and a lengthy cooling period in the real estate market. These issues have prompted policymakers to step up efforts to bolster economic confidence in recent times.
Monday also marked the commencement of the third plenum by the Central Committee of the Chinese Communist Party. This four-day gathering, last held in 2018, is where China’s top brass will determine the course for economic policy.
As part of its long-term strategy for “high-quality development”, Beijing has been promoting the advancement of its manufacturing sphere, specifically in cutting-edge sectors like electric vehicles and AI.
Despite the downturn, industrial output exceeded predictions with a 5.3 percent surge in June, according to reports from the National Bureau of Statistics. However, retail figures disappointed, recording only a 2 percent rise for the same period. Fixed-asset investment recorded a 3.9 percent increase for the first half of 2024.
Junyu Tan from credit insurer Coface highlighted that while there’s been robust growth on the production side, weakening domestic demand conditions had largely negated the benefits from export recovery. June’s exports posted an 8.6 percent year on year increase, outpacing imports which fell by 2.3 percent, indicating a soft domestic demand.
Inflation was minimal in June, with consumer prices inching up just 0.2 percent year on year. New home prices plunged 4.5 percent compared to last year, the fastest drop in nearly a decade, while building starts and property investment tumbled 23.7 percent and 10.1 percent respectively in the year’s first half.
Beijing has established an annual economic growth objective of roughly 5 per cent, succeeding an overall growth of 5.2 per cent in 2023. Many are keenly observing the meeting for indications of additional economic stimulation, especially concerning the struggling property industry. This follows statements made by authorities in May, indicating that state-owned businesses would have the capacity to buy unsold properties.
Oxford Economics’ lead China economist, Louise Loo, remarked that figures relating to credit, retail sales, investment, and inflation highlight an absolute slowdown in domestic demand. However, she hinted that China’s consistently deviating economy does not suggest any substantial stimulus in the latter half of the year.
Eswar Prasad, an economics professor at Cornell University, suggested that the recent data publication would fuel the growing demand for stimulus strategies. These could include fiscal support for households, and broader reforms to cultivate a more advantageous business atmosphere for private businesses.
He further mentioned, “The dependence on exports to drive growth will unavoidably lead to escalating trade conflicts with China’s principal trade associates.” Last month, the EU followed in the footsteps of the US by revealing increased tariffs on Chinese electric vehicles. – All rights reserved, The Financial Times Limited 2024.