China's economy facing 'new difficulties' as post-Covid recovery loses steam

By AFP   July 24, 2023 | 05:11 pm PT
China's economy facing 'new difficulties' as post-Covid recovery loses steam
People walk by office towers in the Lujiazui financial district of Shanghai, China, October 17, 2022. Photo by Reuters
China's top leaders said the Chinese economy was facing "new difficulties and challenges" in a meeting of the 24-person Politburo on Monday.

The country’s highest-ranking officials gather annually at the end of July to review the economic situation before their traditional summer break in August.

In 2023, they met as the post-Covid-19 recovery in the world’s second-largest economy was running out of steam, due in large part to sluggish consumer spending.

"The meeting pointed out that the current economic operation is facing new difficulties and challenges, mainly due to insufficient domestic demand, operational difficulties for some enterprises, high risks and hidden dangers in key areas, and a complex and severe external environment," a readout of the meeting on state broadcaster CCTV said.

The Politburo agreed on Monday that China must "implement precise and effective macroeconomic regulation, strengthen countercyclical regulation and policy reserves," according to CCTV. The meeting, headed by President Xi Jinping, also called for efforts to expand domestic consumption and "adjust and optimize real estate policies in a timely manner," CCTV said.

A run of dismal economic data over recent months has ramped up calls for officials to unveil support measures.

China in July said its economy grew 6.3% in the second quarter, much weaker than the 7.1% predicted in an AFP survey of analysts.

The disappointing result came in spite of the very low base of comparison with 2022, when the country was hit by a series of Covid-19 lockdowns in major cities.

In quarter-on-quarter terms – considered a more realistic basis for comparison – growth came in at 0.8%, well down from the 2.2% seen in January-March, the first full period after the removal of zero-Covid restrictions.

Youth unemployment jumped to a record 21.3% in June, up from 20.8% in May.

And the property sector remains in turmoil, with major developers failing to complete housing projects, triggering protests and mortgage boycotts from home buyers.

While the People's Bank of China in July cut interest rates and the authorities pledged to help the troubled property sector, there has been very little concrete action out of Beijing.

"The key to watch from the meeting is not specific policy measures, but the policy tone set by top leaders," Macquarie economist Larry Hu wrote in a note.

"The government mentioned ‘strengthening countercyclical policies’, but the tone related to fiscal and monetary policies seems not significantly different from before," said Mr Zhang Zhiwei, chief economist at Pinpoint Asset Management.

Mr Zhang said the call to support the property sector appeared to show that the government has "recognized the importance of policy change in this sector to stabilize the economy."

"We don’t expect policymakers to unleash a bazooka-like stimulus package," Mr Hu of Macquarie said. "More likely, they would continue to roll out stimulus measures in a piecemeal way."

China on Friday unveiled a number of measures to encourage the purchase of cars, while other measures have also been announced to promote artificial intelligence and electronics consumption.

Beijing is aiming for about 5% growth in 2023, one of the lowest targets set by the Asian giant in decades, and one that Premier Li Qiang has warned will not be easy to achieve.

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