Chinese GDP: More stimulus urgently needed as economic recovery slows

Hong Kong
CNN
–

China’s economic recovery continued to lose steam in the second quarter of 2023, prompting urgent calls from Beijing for more stimulus.

The world’s second-largest economy grew 6.3% in April-June from a low base a year ago, according to the to the data It was released by the National Bureau of Statistics on Monday. The figure was lower than expected by a group of economists polled by Reuters.

Compared to the first quarter, GDP grew by just 0.8% from April to June. It slowed significantly from the 2.2% quarterly growth recorded in the first quarter.

In the past year, harsh Covid-19 lockdowns wreak havoc In the world’s second largest economy, including the financial center of Shanghai.

The economy rebounded strongly in the first quarter of this year after the lifting of pandemic restrictions, with GDP growing by 4.5%.

However, a slew of economic numbers in recent months suggests that the momentum has faded.

Monday’s data, which showed a marked slowdown in consumer spending and deteriorating business confidence, reinforced the notion that growth has already run out of steam.

“After injecting sugar in the early months of 2023, the pandemic hangover is eating away at China’s recovery,” said Harry Murphy Cruz, an economist at Moody’s Analytics, referring to the initial surge in pent-up demand after reopening.

The waning recovery has prompted Beijing to introduce some stimulus measures, Cruz added, but “more is badly needed.”

How China handles its slowdown is a concern for global investors and policymakers, including US Treasury Secretary Janet Yellen, who visited Beijing earlier this month.

“China is a very big importer from many countries around the world, so when Chinese growth slows down, it has an impact on growth in many countries and we are seeing that,” she told reporters during a trip to India.

The Chinese Yuan weakened after the release of economic data. The offshore interest rate fell 0.3% from the previous day, while the onshore yuan fell about 0.4%.

The Shanghai Composite fell 0.9%. South Korea’s Kospi and Australia’s S&P/ASX 200 were down 0.4% and 0.1%, respectively. Stock markets in Hong Kong and Japan were closed.

The Chinese economy faces a number of challenges.

First, consumers are increasingly concerned about spending.

Monday’s data showed that retail sales rose 3.1% in June, significantly lower than the 12.7% increase in May. It was the slowest growth since December, when Beijing rescinded Most Covid-19 restrictions.

Secondly, private companies, the backbone of the economy and the largest source of employment, are reluctant to hire or make new investments.

Investment in fixed assets such as roads and infrastructure from the private sector shrank by 0.2% in the first half, compared to the same period last year. This accelerated from a 0.1% decline in the first five months of this year.

In contrast, public sector investment jumped by 8.1% in the January-June period.

Youth unemployment has reached another record high. The unemployment rate for those ages 16-24 reached 21.3% in June, breaking the previous record of 20.8% set in May.

NBS spokesman Fu Linghui told a news conference on Monday that this rate may rise further, before gradually declining after August. He said this was due to the expectation of a large number of university students and other young job seekers entering the labor market during the graduation season.

Third, the real estate market is still mired in its worst downturn ever. Investment in the real estate industry fell 7.9% in the first six months of this year. Demand is also weak, with sales down 5.3% in terms of floor area.

Finally, the flabby global economy has added to China’s problems. According to customs figures released last week, exports fell 12.4% in June, the fastest pace in three years. Imports fell 6.8%, worse than markets expected.

To boost growth, the People’s Bank of China (PBOC) to cut Bunch of key interest rates to boost bank lending.

government too Extended tax credits For consumers who purchase new energy vehicles until 2027, in order to promote sales and production in the world’s largest electric vehicle market.

Analysts say the measures are not enough.

“To face the headwinds of continued growth, we expect more [targeted] On Monday, Goldman Sachs analysts said easing measures are in the coming months, with a focus on public finances, housing and consumption.

Cruz also expects Moody’s to ease monetary policy in the coming months.

Liu Guoqiang, deputy governor of the People’s Bank of China, said at a press conference last week that the central bank will step up “counter-cyclical adjustment” to support growth.

“Counter-cyclical policies” refer to measures aimed at counteracting the effects of the economic cycle. For example, officials might add a stimulus to spur expansion during a recession or tighten bank lending during a boom.

He also denied the market’s concerns about falling prices, saying that the Chinese economy is not in a state of contraction and no signs of the phenomenon will appear in the second half of this year.

The comments came after official data released last week showed that 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 that the measures put forward earlier are bearing fruit.

China’s top leaders also signaled a reversal in the way they regulate the country’s tech giants, which have been battered by an all-out crackdown that has lasted more than two years.

On Wednesday, Premier Li Qiang met with CEOs of major Internet companies including the Alibaba Group

(Baba)Bytedance and PDD

(PDD). Li hailed them as “pioneers of the times”, and urged all levels of government to step up political support for them.

The powerful National Development and Reform Commission issued a statement on Wednesday praising Internet companies for their role in boosting the economy. Named after companies like Tencent

(TCEHY) and Alibaba for their contributions.

On Friday, seven government agencies jointly posted long overdue rules Regulate the country’s generative AI industry.

Some of the restrictions that were included in an earlier draft have been eased, a sign that the government was taking a more forgiving and supportive approach to emerging technology, as it competes with competitors in countries like the United States.

Shares of Chinese technology companies rose last week after the good news. The Hang Seng Tech Index rose more than 8%, the best weekly performance since December 2022.

– CNN’s Manviena Suri contributed to this report.