The Guardian: China Facing Economic Crisis

There are a number of problems.

China's economy is growing slower than expected. The world's second-largest economy grew 4.7 per cent in the April-June quarter compared with a year earlier, but that result is down from 5.3 per cent growth in the previous quarter.

The Guardian writes that economists had forecast 5.1% growth for the quarter, but the forecasts have not come true.

The property sector continues to fall, with total sales of new commercial buildings down 25% in the first half of 2024. Retail sales in June were down 0.12% compared to May, indicating weak consumer sentiment that could make it difficult for China to meet its full-year GDP growth target of around 5%.

The relatively weak quarterly result was underpinned by a record trade surplus of nearly $100 billion in June alone, as surplus manufactured goods were shipped abroad. The threat of increasing trade barriers is adding pressure on Chinese leaders and pressing to resume growth inside the country.

Analysts say Beijing should take decisive action to reform the property sector, ease restrictions on internal migration, increase the number of high-skilled graduate jobs and change the tax system to ease local government debt.

But there will "probably" be no sweeping reforms. Instead, we should expect "modest policies that will expand high-tech manufacturing and support housing."

Economic uncertainty fuels a vicious cycle that keeps consumption stubbornly low. The property sector, which has long been a key engine of growth but is now mired in debt and several leading companies are facing liquidation, is among the most pressing challenges for the economy.

In recent months, the authorities have taken steps to ease pressure on property developers and restore confidence, including encouraging local authorities to buy back unsold homes.

NAB senior economist Gerard Burg said the property sector had been declining for the past 28 months. Property investment fell 7.4 per cent, accelerating from May's 4.7 per cent decline a year earlier.

"Conditions in China's residential property sector remain generally negative, with sales in June falling 14.3% year-on-year and construction starts down 18.3%," Burg said.

Retail sales in June, net of inflation, were 1.8 per cent higher than the same month in 2023. This is the weakest result since December 2022, when Covid-19 pandemic effects were taking their toll.

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