The Chinese economy is sputtering. The weak development of industry and retail in the second largest economy in the world is now forcing China’s central bank to cut interest rates again.
Growth rates in China continue to fall short of government expectations and plans. In July, both industry and retail grew more slowly than in the same month of the previous year and were therefore also below the experts’ forecasts.
Forecasts for retail clearly missed
Industrial production in the world’s second-largest economy after the United States rose only 3.7 percent in the past few months compared to the same month last year, slower than the 4.4 percent recorded in June, the National Bureau of Statistics (NBS) reported.
Retail sales, which are a major contributor to overall economic activity in China, also rose just 2.5 percent. In June, the year-on-year increase was still 3.1 percent. The experts’ forecasts of 4.5 percent growth were clearly missed here. It was the slowest growth in the sector since December 2022.
Second rate cut since June
Immediately before the release of the economic data, the Chinese central bank had announced a key rate cut in the early morning German time. As the central bank announced, the interest rate for loans with a one-year term was reduced by 15 basis points to 2.5 percent. It’s the second rate cut since June.
Chinese leaders are under pressure to increase stimulus to China’s flagging economy in a bid to boost economic growth, which will primarily support the country’s labor market. The government in Beijing had already introduced a range of stimulus measures last month – from boosting consumption of motor vehicles and household appliances to easing some property restrictions and supporting the private sector.
unemployment grows
Continued pressure on the real estate sector, growing local government debt, record youth unemployment and slowing foreign demand are among the biggest problems facing the Chinese economy.
The country’s economy grew by 6.3 percent in the second quarter. However, the comparatively high value goes back to the weak period of the previous year: At that time, many cities were in the corona lockdown, and the financial metropolis of Shanghai was even completely sealed off for two months. From the first to the second quarter of 2023, gross domestic product (GDP) in China then only grew by 0.8 percent.
New bad news from the real estate sector
The real estate sector in particular repeatedly makes negative headlines. Yesterday it became known that the Chinese real estate group Country Garden is in massive financial difficulties. The company’s share price on the Hong Kong Stock Exchange plummeted due to an impending default and enormous debt. Should the group go bankrupt, this would have serious consequences for China’s economy and beyond. Country Garden is one of the country’s most important construction companies, employing tens of thousands of people.
Last week, Country Garden failed to make two interest payments due on loans. The company now has a period of 30 days, otherwise bankruptcy is threatened in September. At the weekend, the group also announced that it would suspend the listing of around a dozen bonds from this Monday.