China's Weak Economic Data Sours Rebound Hopes

The Lede: Missed expectations in China’s economic data released on Monday show muted recovery since the end of ‘zero-COVID’ measures and flash warning signs for the global economy.

What We Know:

Data from China’s National Bureau of Statistics marked the country’s second-quarter gross domestic product growth at 6.3% from one year ago. This 0.8% pace of growth from the first quarter’s 5.5% growth lags the 2.2% quarter-on-quarter pace of the first three months of the year. A Reuters poll had predicted a 7.3% increase.
In another alarming record, the unemployment rate among young people between 16 and 24 years old reached 21.3% in June. National Bureau of Statistics spokesperson Fu Linghui remarked that youth unemployment may rise even further before an expected decline after August.
The data points to some strength in industries related to the renewable sector, including electric vehicle sales, as well as in catering, sports and entertainment, domestic travel, and alcohol and tobacco. Fu noted that general economic development had ‘fully returned to normal’ in the first half of the year with Beijing’s 5% growth goal for 2023 still in sight, but warned that geopolitical and international risks remain.

The Background: China dropped its ‘zero-COVID’ measures in December 2022. Although there had been much enthusiasm and projections of a significant recovery in China and the ensuing ripple effects for the global economy, the initial momentum in the country’s rebound has struggled. Some areas that are dragging the economy include a slump in the real estate sector, falling exports as a result of global demand patterns, muted consumer demand, low business sentiment, and high debt among local governments. While other countries have been hiking interest rates, putting pressure on China’s exports, Beijing has been cutting interest rates.

Likely Outcomes:

China’s slow economy will likely blunt the country’s imports of commodities including food and energy. The overall global economy will feel pressure from the lower-than-expected demand from Chinese consumers in the foreseeable future. U.S. and Western economic restrictions on China will also play a role in depressing trade and business. Exports from China will continue on this stagnant path and may worsen due to changes in supply chains which may never return. Countries in Southeast Asia and in other regions where foreign firms are shifting supply chains will correspondingly benefit.
Alongside the new economic data, China has also shown a reluctance to introduce additional stimulus. The attention now shifts to a meeting of China’s politburo later this month where leaders will discuss future measures to support the economy. Chinese foreign policy may increasingly focus on concessions and relationship-building to boost the possibility of strengthening economic ties.

Quotables:

“However, we must be aware that the international political and economic circumstance is quite complicated, and the foundation for sustained recovery at home is not solid yet – Fu Linghui, spokesperson for the National Bureau of Statistics

“The most disappointing number of them all . . . was the youth employment figure . . . That doesn’t bode well for sentiment, for stability, for common prosperity.” – Carlos Casanova, senior Asia economist at Union Bancaire Privée

“China’s recovery is going from bad to worse. The pandemic hangover is plaguing China’s recovery…Increasingly, 2023 is looking like a year to forget for China.” – Harry Murphy Cruise, economist at Moody’s Analytics

"However, we remain skeptical that there will be an announcement of any aggressive fiscal stimulus packages. The government will still implement supportive fiscal policy, albeit in a cautious manner. After experiencing a challenging process of deleveraging, the government is more keen to ensure that public spending or investment will have positive spillovers to productivity or persistent household demand, rather than simply inflating growth figures." – Yue Su, principal economist of the Economist Intelligence Unit

Good Reads:

China GDP up 6.3% in Q2, falling short of projections (Nikkei Asia)

China’s economy loses momentum in second quarter (FT)

China’s Rebound Falters, Tripped Up by Debt and Weak Exports (NYT)

China reports second-quarter GDP miss, another record high in youth unemployment (CNBC)

More stimulus ‘desperately’ needed as China’s economic recovery slows further (CNN)