Beijing China’s economy is not picking up speed. China’s economy grew by 6.3 percent between April and June, official figures from the statistics agency NBS showed on Monday. But the plus results primarily from the weak comparative value in the previous year, when growth was only 2.5 percent as a result of the lockdown in Shanghai. In fact, the economy grew by just 0.8 percent compared to the first three months of the year.
The disappointing data and growing fears of deflation are now likely to increase calls for an economic stimulus package. So far, only selective measures have followed the announcements to support the economy.
Concerns about a sustained phase of weakness are not only growing in Beijing: the figures are also worrying governments and companies all over the world. Economists expect the country’s lack of momentum to put further pressure on global growth.
There are also doubts about the reliability of the economic data from China. New laws and restrictions are constantly making access to independent information from the country more difficult.
The customs authorities announced last week that China’s exports had fallen by more than twelve percent in June. The persistent crisis in the real estate market, which has been an important driver of growth up to now, is also weakening the economy. At the same time, youth unemployment reached a new record high: 21.3 percent of 16- to 24-year-olds in China’s cities were unemployed in June.
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In addition to the GDP figures, a number of other economic data for June were released on Monday. Retail sales in June rose 3 percent from May, slightly less than forecast. Industrial production increased by 4.4 percent compared to the previous month and was therefore stronger than expected.
In the spring, the state leadership issued a growth target of around five percent for 2023. Last year, as a result of numerous lockdowns and other corona restrictions, the country’s economy grew by only three percent instead of the planned 5.5 percent. It was the weakest reading after 2020 since the reform and opening-up policies of the late 1970s.
China’s recovery isn’t steep, but it’s not over yet either. Shehzad Qazi, CEO of the US analyst firm China Beige Book
In particular, the sealing off of the economic metropolis and logistics hub of Shanghai in 2022 caused horror at home and abroad. Some of the 25 million residents were locked in their homes for more than two months, factories stood still, global supply chains broke.
The shock of the Chinese government’s ruthless actions is still deep and has shaken the confidence of many companies and consumers. The result: you save instead of investing.
China’s households are hoarding their corona savings
The hope that Chinese households would happily spend their corona savings after the end of the restrictions and thus boost the economy has not yet been fulfilled. On the contrary, according to central bank data, household deposits continued to rise to the equivalent of $2.5 trillion in the first half of the year.
Another important reason for caution is the ongoing crisis in the real estate market. The Chinese government’s attempt to curb the excess credit there has led to massive upheavals in the industry. Many Chinese are now fearing for their savings, because it is estimated that around three quarters of private wealth is in real estate.
These investments in supposed concrete gold were an important growth driver of the Chinese economy for decades. This is now missing.
China’s economic weakness is weighing on the global economy.
(Photo: dpa)
Added to this is the slowdown in the global economy, which is increasingly being felt by China’s export economy. So far, exports have been an important pillar of the Chinese economy. But last week it was announced that they fell by more than 12 percent in June. And so far, the lack of demand from abroad cannot be replaced by increasing domestic consumption, says Xu Bin, economics professor at the China Europe International Business School (CEIBS) in Shanghai, according to the Handelsblatt.
This also has consequences for price developments. Because while many western economies are currently suffering from high inflation, consumer prices in China have stagnated recently. Producer prices even fell. This increases concerns about deflation.
Because if companies and consumers assume that prices will continue to fall, they postpone purchases and investments even further. Experts fear that this can lead to a negative price spiral of falling investments, falling sales and falling wages.
Nevertheless, Shehzad Qazi warns against too much pessimism. China’s upswing is “not steep, but it’s not over yet,” emphasizes the managing director of the US analysis company China Beige Book (CBB). Qazi points out that consumer spending is still increasing. Retail and the tourism industry benefited from this. In manufacturing, too, sales increased for the third month in a row.
Experts warn against false expectations of an economic stimulus package
The otherwise mostly very critical CBB analysts are convinced that the core of the Chinese economy is recovering. They therefore warn against false expectations of a large economic stimulus package. Such a move would not only be “expensive and embarrassing for Beijing,” but companies would continue to signal that it wasn’t necessary.
5.2
percent
of employable Chinese are unemployed.
Economic expert Xu is also convinced that the Chinese economy does not need an expansive monetary or fiscal policy in order to grow again. The recent monetary easing “didn’t do much”. And while in the past the state leadership often pushed the economy with infrastructure projects, there are now fewer and fewer sensible investment opportunities.
There is no shortage of money, Xu clarifies, referring to the high savings rate. It is crucial that Chinese consumers and companies from home and abroad regain confidence and spend their money. If China’s private sector is given the necessary freedom, it will continue to ensure growth in the future.
According to experts, this is also a prerequisite for a recovery on the labor market. Despite official growth of 5.5 percent in the first half of the year, too few new jobs have been created so far. The official unemployment rate stagnated at a low level of 5.2 percent. But the high level of youth unemployment is causing increasing concern for the state leadership. In June alone, more than eleven million university graduates entered the tight job market, more than ever before.
Search for means against youth unemployment
Any economic growth that doesn’t help solve the jobs problem “cannot be considered effective growth,” warned Wang Mingyuan, a professor at Beijing’s Tsinghua University, in a widely shared social media post. In order to create new jobs, especially for young people, the market environment for the private sector must improve, especially for tech companies and service providers, he emphasizes. Because small and medium-sized private companies in China provide around 80 percent of all jobs in the cities. They have suffered particularly badly from the strict zero-Covid policy with its unpredictable lockdowns.
In addition, the State leadership with far-reaching regulatory interventions has greatly unsettled the country’s tech companies, which had previously grown largely unregulated. Lately there have been increasing signs of an end to the wave of regulations in the innovative sector. Last week, Premier Li Qiang received the representatives of several platform companies, including Alibaba, Bytedance, Meituan and Pinduoduo. He called on them to do their part to strengthen the economy.
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