In July, China’s industrial output slowed for the third consecutive month, while the real estate sector continued to falter. This indicates that China’s economic recovery is losing momentum.
According to reports from Reuters, a series of data released by the Chinese Communist Party (CCP) officials on Thursday (August 15) showed that the start of the second half of the year for China’s economy was not smooth. Following the dismal export figures, inflation, and bank loan indicators earlier this month, the continued slowdown in industrial output has heightened concerns.
Data released by the CCP National Bureau of Statistics on Thursday showed that in July, China’s industrial output increased by 5.1% year-on-year, a slowdown from 5.3% in June and below analysts’ expectations of 5.2%. On the other hand, retail sales in July increased by 2.7%, slightly up from 2.0% in June and surpassing the expected 2.6%.
Analysts believe that overall, these data underscore the urgency for policymakers to introduce more stimulus measures to boost consumer spending, rather than channeling funds into infrastructure development.
Julian Evans-Pritchard, director of China economic research at Capital Economics, stated, “Last month’s economy seemed to show some stabilization, with the recovery in consumer spending and service activity largely offsetting the slowdown in investment and industrial production.”
With 70% of Chinese household wealth tied to real estate, and the real estate industry having once accounted for a quarter of China’s total economic output at its peak, consumers have been tightening their belts.
Another data point from Thursday revealed that due to stimulus policies failing to restore confidence in the troubled real estate industry, new housing prices in China saw the fastest decline in nine years in July, with no signs of improvement yet.
Furthermore, there are clear signs of further weakening in demand for commodities. China’s refineries saw a 6.1% year-on-year decline in output in July, while crude steel production dropped for the second consecutive month.
In the first seven months of 2024, China’s fixed-asset investment grew by 3.6% year-on-year, below the expected 3.9%. This growth rate is also slower than the 3.9% seen in the first six months.
Analysts generally agree that more policies supporting consumers need to be put in place, while also warning that additional leverage measures may be necessary to maintain economic stability.
The anticipated recovery post the COVID-19 pandemic in 2022 failed to materialize, leading to continuous calls for more measures to stimulate growth.
Although the CCP still holds a growth target of around 5% for this year, analysts fear that China may be stuck in a prolonged economic downturn.
On Thursday, the CCP central bank injected cash through short-term bonds and announced the extension of the Medium-Term Lending Facility (MLF) later this month to enhance liquidity support for the financial system. The central bank expressed its intention to provide broader financial support to the economy at an earlier meeting this month.
However, amidst a domestic demand that is weak and an unclear outlook, households and businesses are not eager to borrow, making these measures potentially ineffective, and demanding other changes.
Zhao Zhaopeng, a China market economist at ANZ Bank, said, “Data shows that the start of the second half of the year is weak, and the probability of a cut in the reserve requirement ratio (RRR) replacing the MLF is increasing. However, the key to maintaining 5% economic growth lies in the implementation of fiscal spending,” referring to the central bank’s reserve requirement ratio.