China’s economic recovery continued to lose steam in the second quarter of 2023, prompting urgent calls for more stimulus from Beijing.
The world’s second-largest economy expanded 6.3% in the April-June period from a low base a year ago. to the data The National Bureau of Statistics (NBS) released the data on Monday. The figure was lower than expected by a panel of economists polled by Reuters.
Compared to the first quarter, the gross domestic product (GDP) increased by only 0.8% from April to June. This was a significant drop from the 2.2% quarterly growth recorded in the first quarter.
The economy rebounded strongly in the first quarter of this year after pandemic restrictions were lifted, with GDP growing at 4.5%.
However, several economic statistics in recent months suggest the momentum has faded.
Monday’s data showed a marked slowdown in consumer spending and weakened business confidence, reinforcing the view that growth has indeed lost steam.
“After a sugar injection in the opening months of 2023, the pandemic hangover is affecting China’s recovery,” Moody’s Analytics economist Harry Murphy Cruz said, referring to the initial burst of demand after the reopening.
CFOTO/Future Publishing/Getty Images
Customers shop at a supermarket in Qingzhou, Shandong province on July 10, 2023. Consumer spending is not strong enough to boost the economy.
Cruz added that the slowing recovery has prompted Beijing to introduce some stimulus measures, but “much more is needed.”
How China deals with its slowdown is a concern for global investors and policymakers, including US Treasury Secretary Janet Yellen. Visited Beijing Earlier this month.
“China is a very significant importer from many countries around the world, so when Chinese growth slows down, it affects the growth of many countries, which we see,” he told reporters during a visit to India.
The Chinese yuan weakened after the release of economic data. The onshore rate fell 0.3% from the previous day, while the onshore yuan fell almost 0.4%.
The Shanghai Composite Index fell 0.9%. South Korea’s Kospi and Australia’s S&P/ASX 200 were 0.4% and 0.1% lower, respectively. Stock markets in Hong Kong and Japan were closed.
The Chinese economy faces many challenges.
First, consumers are increasingly wary of spending.
Retail sales rose 3.1% in June, significantly lower than May’s 12.7%, data showed on Monday. This marked the slowest growth since December in Beijing Removed Most of its Covid-19 restrictions.
Second, private businesses, the backbone of the economy and the largest source of employment, are reluctant to hire or make new investments.
Private sector investment in fixed assets such as roads and infrastructure shrank 0.2% in the first half, compared with the same period a year ago. That accelerated from a 0.1% fall in the first five months of the year.
In contrast, state sector investment rose by 8.1% in the January-June period.
Youth unemployment hits another record. The unemployment rate for those aged 16 to 24 reached 21.3% in June, beating the previous record of 20.8% in May.
That rate is likely to increase further before gradually falling after August, NBS spokesman Fu Linghui told a press conference on Monday. That’s because college students and other young job seekers are expected to enter the labor market around graduation, he said.
Third, the property market is still stuck in its worst slump. Investment in the property sector fell by 7.9% in the first six months of this year. Demand is also weak, with floor area sales down 5.3%.
Finally, a slowing global economy added to China’s woes. Exports fell 12.4% in June, the fastest in three years, according to customs figures released last week. Imports fell 6.8%, worse than markets expected.
To boost growth, the People’s Bank of China (PBOC) has cut Some important interest rates to increase bank loans.
Even the government Extended tax benefits to consumers purchasing new energy vehicles by 2027, encouraging sales and production in the world’s largest EV market.
Analysts say these measures are not enough.
“To counter continued growth headwinds, we expect more [targeted] A focus on finance, housing and consumption will ease activity in the coming months,” Goldman Sachs analysts said on Monday.
Moody’s Cruz expects monetary policy to ease in the coming months.
Liu Guoqiang, deputy governor of the PBOC, said at a press conference last week that the central bank would increase “countercyclical adjustments” to support growth.
“Countercyclical policies” refer to the intention to counter the effects of economic cycles. For example, authorities can add stimulus to spur expansion during a recession or tighten bank lending during a boom.
He also dismissed market concerns about falling prices, saying the Chinese economy was not in deflation and would not show signs of this phenomenon in the second half of the year.
The comments came after official data released last week showed the consumer price index was unchanged in June, the slowest pace since February 2021. Producer prices fell at their fastest pace in more than seven years.
Liu asked for patience, saying the measures taken earlier were working.
China’s top leaders have also pointed to a reversal in the way it regulates the country’s tech companies, which have been hit by a heavy crackdown lasting more than two years.
On Wednesday, Premier Li Keqiang met Executives from major Internet companies, including Alibaba Group
(Baba)Pythons and PDD
(PDD). Li hailed them as “trailblazers of the era” and urged all levels of government to increase policy support for them.
The powerful National Development and Reform Commission issued a statement on Wednesday praising the role of internet companies in boosting the economy. Named companies like Tencent
(Czech Republic) and Alibaba for their contributions.
On Friday, seven government agencies issued a joint statement Long awaited rules Regulates the country’s developing AI industry.
Some of the restrictions included in the previous draft were relaxed, signaling that the government is taking a more tolerant and supportive approach to the new technology as it competes with rivals in countries like the US.
Chinese tech stocks rallied last week after good news. The Hang Seng Tech Index rose more than 8%, its best weekly performance since December 2022.
— CNN’s Manveena Suri contributed reporting.