China’s National Bureau of Statistics recently reported that the country’s second-quarter GDP only rose by 4.7% year on year, missing expectations of a 5.1% growth based on a Reuters poll. This underwhelming performance indicates a slowdown in the Chinese economy, with June retail sales also failing to meet estimates by rising only 2% compared to the forecasted 3.3% growth. These figures suggest that discretionary retail spending in China decreased significantly, marking the sharpest sequential decline since the April 2022 Shanghai lockdowns.
While overall economic growth is lackluster, industrial production showed some positive signs with year-on-year growth in June beating expectations at 5.3%. Particularly, high-tech manufacturing witnessed an 8.8% increase in value added during the same period. Moreover, urban fixed asset investment for the first six months of the year met expectations by rising 3.9%.
However, investment in infrastructure and manufacturing has slowed on a year-to-date basis in June compared to May. Real estate investment also declined at a rate of 10.1%, indicating a concerning trend in this sector. Housing-related wealth in China has only increased by 2.2% in 2023, representing a significant drop from the average annual pace of 13% observed between 2016 and 2021. These factors highlight the challenges faced by China’s economy and the need for strategic interventions to spur growth.
The urban unemployment rate in June remained unchanged at 5%, suggesting stability in the job market. However, the youth unemployment rate remained high at 14.2% in May, indicating challenges in providing employment opportunities for young people. Average per capita disposable income for city residents increased nominally by 4.6% from a year ago, while rural disposable income grew at a faster rate of 6.8%. Disparities persist, with urban residents earning more than twice as much as rural residents on average.
China is facing the looming challenge of achieving its target of around 5% growth, given that the economy only expanded by 5% in the first half of the year. The Second Plenum, a high-level policy meeting in China, is expected to address key economic issues and outline strategies for sustainable growth. The government may need to increase fiscal support and ease monetary policy in the second half of the year to stimulate economic activity and maintain momentum.
China’s exports have performed better than expected, growing by 8.6% year on year. However, uncertainties remain due to trade tensions, which could impact future export growth. Retail sales for the first six months of the year rose by 3.7%, driven by a significant increase in online sales of physical goods by 8.8%. The services sector also recorded a 7.5% increase in sales, indicating resilience in certain areas of the economy. However, consumer price inflation remains subdued, with core CPI rising by only 0.6% year on year in June.
Recent credit data from China shows a sharp decline in the growth of broad money supply and new yuan loans compared to the same period in 2023. Household loans increased by 1.46 trillion yuan in the first half of the year, significantly lower than the previous year’s figure. In the business sector, loans also saw a slight decrease. The People’s Bank of China’s focus on enhancing monetary policy transmission underscores the importance of managing credit growth effectively to support economic stability.
China’s economic performance in the second quarter fell short of expectations, signaling challenges in key sectors such as retail, real estate, and consumer spending. While there are positive aspects such as industrial production growth and stable unemployment rates, concerted efforts will be needed to stimulate economic recovery and sustain long-term growth. Policymakers must adopt proactive measures to address the underlying issues and create a conducive environment for economic revitalization.