The much-awaited uplift from China is not on the horizon
CHINA’S economic growth is in jeopardy. With that, all hopes for a stellar post-pandemic recovery in the world’s powerhouse to re-energise a slowing global economy need to be set aside.
If anything, those expectations now seem far-fetched – a hard truth that’s unchanged by the raft of recent measures unveiled by Beijing to prop up its ailing stock and property markets.
Over the weekend, China announced a stamp-duty cut on stock trading to boost its stock market and restore investor confidence. The authorities also extended personal income-tax rebates for people who buy new homes within one year of selling till 2025, to support its crisis-hit property sector.
Beijing has been under pressure to step up efforts to bolster growth amid material headwinds, including financial stability risks, as its economic growth moderates. The yuan fell to its lowest level against the US dollar this month, and foreign investors are dumping Chinese stocks at a record pace as its economic momentum deteriorates.
A recent string of data on the world’s second-largest economy has been dismal, pouring ice-cold water on hopes of a major economic revival after the country lifted its three-year long pandemic curbs.
China’s industrial profits dropped 15.5 per cent for the first seven months of 2023 compared to the same period last year. Economists warn that a deeper slowdown has yet to flow through the Chinese economy.
Gross domestic product growth has disappointed, amid weakened demand at home and abroad. The Chinese economy grew by just 0.8 per cent in the April-to-June quarter from the previous three months.
Hurting the consumption-led recovery narrative further are China’s retail sales, which grew 3.1 per cent, a sharp comedown from a 12.7 per cent jump in May. Consumer price inflation was near zero, and producer prices declined 5.4 per cent, raising concerns of deflation. Latest data also showed that exports – a traditional engine of growth – declined the most in three years.
China’s property developers continue to face duress. This has reignited concerns over a debt crisis, although most economists say an outright debt turmoil is unlikely for now.
Against this backdrop, unless the actions are far and wide-ranging, Beijing risks its policy measures being deemed “too little too late” or inadequate.
Similarly, while the recent stimulus package is a positive for capital markets, investors’ cheer may be short-lived as they may not run deep enough to restore China’s waning economy, which US President Joe Biden recently described as a “ticking time bomb”. Economists have called for more follow-through measures to support the economic fundamentals.
This also underscores the extent to which China’s outlook currently relies on governmental support to revive its real economy.
The bleak outlook could, of course, take a sharp turn if policymakers ratchet up more substantial measures in the coming weeks and months to prop up the Chinese economy, be it to stimulate domestic consumption or woo more investments, while providing the property sector with more assistance.
On the other hand, a lack of policy action on Beijing’s part, amid difficult times albeit not insurmountable, could hold disastrous consequences – for China and the rest of the world.
