The National Bureau of Statistics of the People’s Republic of China recently released data showing that the GDP (Gross Domestic Product) growth rate for the second quarter has slowed to 4.3%, lower than the 5% growth rate in the first quarter of this year and below the expectations of industry experts.
On July 15th, Deputy Director of the National Bureau of Statistics of China, Mao Shengyong, announced that the country’s GDP for the first half of the year totaled 69.57 trillion Yuan in constant prices, showing a 4.7% year-on-year increase. In terms of quarterly growth, the GDP in the second quarter increased by 4.3%. Compared with the previous quarter, the GDP in the second quarter grew by 0.9%.
The reported GDP growth rate by the Chinese authorities is lower than the forecasts of many industry experts. According to a report by China’s “Time Weekly” on July 11th, research institutions such as the Minsheng Bank Research Institute and Yuekai Securities predicted that the second-quarter GDP growth rate in China would be lower than the first quarter. Among these institutions, four predicted a 4.5% growth rate, two predicted 4.4%, one predicted 4.7%, and one predicted 4.2%.
The Minsheng Bank Research Institute believes that factors such as changes in the external situation, marginal easing of fiscal policy, and pressure on household balance sheets have led to a “differentiated K-shaped” economic pattern in China in the second quarter, with external demand stronger than internal demand, upstream stronger than downstream, and new momentum stronger than old momentum.
Chief Economist of Yuekai Securities, Luo Zhiheng, believes that the economic trend in China for the latter half of the year will depend on two key factors – “real estate” and “exports.” While some first-tier cities have seen stabilization in second-hand housing prices, the overall real estate sales and investments in China still face pressure.
A survey conducted by Agence France-Presse with 11 economists found that they all agreed on China’s weak economic performance in the second quarter, with growth likely to be around 4.5%, significantly lower than the 5% in the first quarter.
Economists attribute this weak performance to the impact of the Iran conflict, leading to decreased demand in overseas markets. With domestic demand remaining soft, China’s economy is increasingly relying on export trade to alleviate the pressure from insufficient domestic demand.
They also point out that since 2020, China’s domestic economy has been plagued by a real estate crisis, with no signs yet of the crisis bottoming out. Therefore, it is hard to imagine a rebound in domestic consumption.
Morgan Stanley’s Chief Economist for China, Xing Ziqiang, mentioned in a recent interview with Bloomberg that China’s GDP growth rate in the second quarter is likely around 4.4%.
He indicated that daily retail demand in China remains quite weak, and the Producer Price Index (PPI) may have already peaked since the profit margins in conventional bulk commodity industries have remained stable, without benefiting from upstream price increases. The data suggests that rapid inflation is largely an illusion.
In a recent report, Citibank stated that China’s economic slowdown in the second quarter is largely due to the underestimated “actual fiscal tightening” by the market. Despite Beijing’s inclination to support economic growth, both central and local government fiscal support have fallen below expectations.
Citibank defines this “actual fiscal tightening” as a situation where, without formally cutting expenditures, the level of fiscal policy support for economic growth has actually weakened.
Citibank noted that the reduction in public expenditure has become a significant factor hampering investment and consumption. With the real estate market in continual decline and a fragile domestic demand base, an unexpected fiscal tightening has emerged, creating a disconnect with the economic growth targets set by policymakers.
Citibank uses the notable slowdown in fixed asset investment and weak retail consumption as evidence, suggesting that the decline in fiscal support is suppressing domestic demand. The report also highlights that the reduction in subsidies for consumer goods trade-ins and delays in government funding disbursement have similarly hindered household consumption in the second quarter.