China’s recovery is being thwarted by “new challenges,” Chinese leaders admitted Monday in Beijing, as the world’s second-largest economy faces slowing growth and record youth unemployment. China released last Monday a growth figure for the second quarter (+6.3% YoY), well below analysts’ expectations. However, this rate, which would be the envy of most major economies, is misleading because the comparison is made with the same period of the previous year. However, in the second quarter of 2022, growth had been heavily penalized by the lockdown in the economic capital Shanghai.
From one quarter to the next, a more realistic basis for comparison, the Asian giant’s growth increased only 0.8% in the April-June period, weakened by sluggish consumption, a failing real estate sector and the specter of deflation. Following these disappointing quarterly figures, Chinese officials, including President Xi Jinping, provided an update on the economic situation on Monday. It was stressed “during the meeting that the current functioning of the economy is facing new difficulties and new challenges,” state television CCTV reported, referring in particular to weak domestic demand.
A very ambitious growth target of 5%
The meeting minutes also described an unspecified “significant number of risks,” “hidden dangers in key areas,” as well as a “complex and difficult external environment,” amid geopolitical tensions with the United States and the war in Ukraine. The meeting does not lead to “any major announcements,” says analyst Julian Evans-Pritchard of Capital Economics, while many economists advocate a broad recovery plan. But the tone reflects the “concern” of power, which still welcomed a “better-than-expected” recovery in April, he recalls. Last month, the unemployment rate among 16-24 year olds in China reached a new record of 21.3%, according to official figures that only take into account the situation in major cities.
Every year, Chinese leaders traditionally meet at the end of July to discuss the country’s economic situation. Chinese President Xi Jinping then convenes the Political Bureau, the decision-making body of the Chinese Communist Party (CCP) that includes, including him, the country’s 24 top political figures.
China is targeting growth of around 5% this year, a pace that would be one of the weakest for the Asian giant in decades. However, this goal could be difficult to achieve, Chinese Premier Li Qiang warned a few months ago. The official growth figure for China, eminently political and subject to prudence, nevertheless continues to be highly scrutinized given the weight of the second largest economy in the world.
The real estate sector is still in crisis
To stimulate activity, China has multiplied announcements in recent days and has shown its support for the private sector, by far the country’s largest employer. On Friday the incentives for the purchase of new vehicles were announced. The automotive sector, which supports an army of employees and subcontractors in China, was one of the engines of the economic recovery in 2021 after the first wave of the Covid-19 epidemic. Other measures have also been announced to encourage the purchase of electronic products, of which China is one of the main manufacturers, or to attract private investment.
The world’s second largest economy is also weakened by a major housing crisis. Chinese leaders pledged on Monday to “optimize and adjust policies” related to the sector. The real estate sector, the mainstay of Chinese growth, is suffering from a crisis of confidence, discouraging Chinese people from buying property at a time when many developers are in precarious financial straits. Real estate prices have skyrocketed in recent decades, but the indebtedness of developers has reached such levels that the authorities have decided to stop it from 2020. Since then, their access to credit has been considerably reduced and many groups are now struggling to survive.
Source: BFM TV
