Off late, the Chinese have displayed a reluctance to invest abroad, with the China Pakistan Economic Corridor being a typical example. One of the reasons is perhaps the state of the Chinese economy, itself. China’s economy grew much slower than expected in the second quarter as a protracted property downturn and job insecurity knocked the wind out of a fragile recovery, keeping alive expectations Beijing will need to unleash even more stimulus.
The world’s second-largest economy grew 4.7% in April-June, official data showed, its slowest since the first quarter of 2023 and missing a 5.1% forecast in a Reuters poll. It also slowed from the previous quarter’s 5.3% expansion.
Of particular concern was the consumer sector, with retail sales growth grinding to an 18-month low as deflationary pressures forced businesses to slash prices on everything from cars to food to clothes.
“Overall, the disappointing GDP data shows that the road to hitting the 5% growth target remains challenging,” said Lynn Song, chief economist for Greater China at ING.
The years-long property crisis deepened in June as new home prices fell at the fastest pace in nine years, battering consumer confidence and constraining debt-laden local governments’ ability to generate fresh funds through land sales.
Analysts expect cutting debt and boosting confidence to be the main focus of a key economic leadership meeting in Beijing this week, although solving one of those problems may make it difficult to fix another.
The government is aiming for economic growth of around 5.0% for 2024, a target that many analysts believe is ambitious and may require more stimulus.
The sharper-than-expected growth slowdown in the second quarter prompted Goldman Sachs to lower its forecast for China’s 2024 growth to 4.9% from 5.0%.
“To counteract weak domestic demand, we believe more policy easing is necessary through the remainder of this year, especially on the fiscal and housing fronts,” said Goldman Sachs economists, led by Lisheng Wang, in a note on Monday.
On a quarterly basis, growth came in at 0.7% from a downwardly revised 1.5% in the previous three months, the data from the National Bureau of Statistics (NBS) showed.
Economic growth in China has been uneven with industrial output outstripping domestic consumption, fanning deflationary risks amid the property downturn and mounting local government debt.
While solid Chinese exports have provided some support, rising trade tensions now pose a threat.
Broadly reflecting those trends, separate data on Monday showed factory output growth beating expectations in June but still slowing from May.
That follows data released earlier this month that showed China’s exports in June were up 8.6% from a year earlier, while imports unexpectedly shrank 2.3%, suggesting manufacturers were frontloading orders to get ahead of tariffs from trade partners.
The bigger pain point on Monday, however, was seen in retail sales, which rose 2.0% year-on-year, missing forecasts and the slowest growth since December 2022.
“Among all the monthly figures released today, the highlight is the weak retail sales,” said Xing Zhaopeng, senior China strategist at ANZ.
“Household consumption remains very week … with employers slashing salaries and high youth unemployment, households will still be cautious going forward,” Xing added.
In the long run, should the economy not pick up pace, Chinese investments in the Belt and Road initiative, especially the CPEC, would dilute.
Team BharatShakti
(With Inputs from Reuters)
