The data shows that China’s economic recovery is weak, continuing to decline overall, especially with the real estate industry experiencing a significant downturn. The shrinking overall consumption indicates a lack of confidence among the people in the future. The Chinese Communist Party (CCP) is facing dual pressures of domestic economic downturn and a severe international trade environment. In this context, the CCP is set to convene the Third Plenum in July, where it is expected to discuss and formulate relevant policies to boost the economy. Experts believe that the CCP has no miraculous cure to save the economy, only buying time.
On June 17, the National Bureau of Statistics of China released economic data for May, showing a significant decline in various indicators of the real estate market from January to May. The real estate industry, which has accounted for at least 17% of China’s GDP in the past 20 years (official data states a direct share of 7.34%, with indirect influence on related industries amounting to 9.9%), is believed by some to potentially reach 25% or even close to 30% of the GDP.
The basic situation of the Chinese real estate market from January to May as reported by the National Bureau of Statistics of China on June 17 shows a 10.1% year-on-year decrease in real estate development investment, a 20.3% decrease in sales area of new commercial housing, and a 23.6% decrease in residential sales area. Sales of new commercial housing dropped by 27.9%, with residential sales plunging by 30.5%. The funds in place for real estate development enterprises saw a 24.3% year-on-year decrease, including a 36.7% drop in deposits and prepayments, and a 40.2% decline in individual mortgage loans.
Despite enacting a package of measures on May 17 aimed at boosting the real estate industry, such as providing 300 billion yuan in additional loans and funding state-owned enterprises to purchase completed unsold properties for affordable housing, these measures have not been effective. Not only have the real estate economic indicators for January to May seen a significant decline, but real estate stocks have also tumbled, dropping by 20% from their peak in May, indicating an upcoming technical bear market.
Dr. Xie Tian, a professor at the Moore School of Business at the University of South Carolina, mentioned on June 17 that the CCP is desperately trying to maintain housing prices, fearing a property market collapse which could drag down the banking sector. However, the better the bubble is protected, the larger it grows, leading to greater harm when it eventually bursts.
Dr. Xie stated that the downfall of the CCP’s real estate industry is irreversible. While the CCP hopes for a miracle, various parties including Wall Street, Hong Kong capital, have already attempted to intervene with no success. There is no financial power available to rescue China’s real estate market currently, so it can only be a day-by-day existence.
On May 14, the United States announced an increase in tariffs on Chinese electric cars from 25% to 100%. Additionally, US tariffs on other Chinese products, such as steel and aluminum, were raised to 25%. The G7 summit declaration included criticism of the CCP’s support for Russia in the invasion of Ukraine, issues regarding Taiwan and the South China Sea, and concerns about human rights, as well as unfair trade practices in international trade. These economic sanctions and political restraints will inevitably affect China’s international trade, reflecting on its domestic economy and society.
Dr. Xie stated that the US has imposed numerous sanctions on China, primarily targeting high-end products. Should Trump return to office next year, he plans to levy a 60% tariff on Chinese goods. With rising labor costs in China, a deteriorating business environment, severe human rights issues, CCP intervention, etc., foreign companies are compelled to shift their production bases away from China, further worsening the Chinese economy.
The CCP’s Politburo decided at the end of April to hold the Third Plenum in July this year. Historically, the Third Plenums have been crucial for planning and deploying economic policies. However, there seems to be a lack of effective measures visibly presented by the CCP to stimulate economic growth. Thus, China’s economy is now in a critical condition.
Dr. Xie pointed out that the CCP has exhausted its traditional economic drivers, with new ones like electric cars immediately disrupted by Western competitors. Without new economic growth points or productivity boosters, the CCP is unable to bring forth a viable method to stimulate the economy. Amid such challenging and critical economic conditions, had the CCP possessed a good solution, it would have acted upon it earlier.
The previous paragraphs indicate the difficulties faced by China’s economy. Stagnating economic activity and contracting social financing have been noted in the Statistic reported by the People’s Bank of China. As the social financing increment diminishes, it suggests a slowing, stagnant, or declining economic condition.
Regarding China’s economic status, Dr. Xie mentioned that as the Chinese economy continues to decline and incomes decrease, prices of public services, healthcare, education, etc., are rising. High unemployment rates are also a significant issue, particularly concerning youth unemployment, a situation where the CCP claims it’s around 20%, but in reality, it could be over 47%, nearing 50%. Dr. Xie pointed out that with millions of young people, including college graduates and high school students entering the job market, the employment situation is becoming even more challenging.
Currently, the CCP not only faces a domestic economic downturn but also a worsening international trade environment due to anti-dumping measures and sanctions imposed by Western countries.
In summary, the economic sanctions, political restraints, as well as ideological criticisms will undoubtedly impact China’s international trade, ultimately reflecting on its domestic economy and society.
Dr. Xie concluded that the series of economic sanctions and factors such as rising labor costs, deteriorating business environment, grave human rights violations, and CCP intervention forcing foreign companies to relocate their production bases from China will lead to further deterioration of the Chinese economy, exacerbating the existing challenges.