Agencies
China’s second-quarter economic growth fell short of expectations, hindered by weak consumption and declining property investment, adding to challenges for Beijing to hit its annual growth target as its top policymakers began a meeting on Monday to discuss solutions to stubborn challenges.
Analysts said the quarterly and monthly data released on Monday served as the latest wake-up call for policymakers, who kicked off the long-awaited third plenum in Beijing.
The world’s second-largest economy grew by 4.7 per cent in the second quarter compared to a year earlier, but this was lower than the 5.08 per cent growth predicted by Chinese financial data provider Wind and the 5.3 per cent growth seen in the first quarter.
"China’s economy shows a broad deceleration as weak consumer and business sentiment further deepen the woes,” said Gary Ng, senior economist at Natixis Corporate and Investment Bank.
In the first half of the year, China’s gross domestic product grew by 5 per cent year on year, while quarter-on-quarter growth slowed to 0.7 per cent in the second three months of the year, down from a rise of 1.5 per cent from the previous three months.
Beijing has set an annual economic growth target of around 5 per cent, with its strong export performance serving as a robust driver to offset persistent domestic challenges, with multiple domestic and international economic institutions having predicted that the goal was likely to be achieved following the release of first quarter GDP data in April.
"[The latest] data shows that it will be challenging for Beijing to reach its full-year growth target, and it will have to ensure that GDP growth stays around at least 1.4 per cent quarter on quarter in the next two quarters,” said Ding Shuang, chief economist for Greater China at Standard Chartered.
"And to achieve such growth, Beijing must simultaneously ensure that external demand remains strong to support exports while speeding up the repair of domestic demand.”
Last year, China’s GDP reached 4.9 per cent in the third and 5.2 per cent in the fourth quarter, leading to 5.05 per cent year on year growth in the second half of the year.Elsewhere, retail sales rose by 2 per cent in June, year on year, compared with 3.7 per cent growth seen in May, marking the slowest pace since China lifted its coronavirus restrictions at the end of 2022.
The reading was the lowest for the same month in the past decade, except for the only decline in June 2020 in the early stages of the coronavirus pandemic.
And it came as the 618 shopping festival in June, similar to Black Friday in the United States, seemingly failed to significantly boost residents’ willingness to spend.
"Our estimates suggest retail sales growth probably contracted outright in seasonally-adjusted month on month terms, amid still depressed consumer confidence,” said Zichun Huang, China economist at Capital Economics.
"Looking ahead, we expect economic growth to regain some momentum in the coming months.
"And while consumer spending is likely to stay subdued, continued price cuts among Chinese manufacturers mean that exports should remain robust for now despite increased tariffs from the US and EU.”
Overall fixed-asset investment rose by 3.9 per cent in the six months of 2024, year on year, compared with a 4 per cent gain in the January-May period, while private investment grew by 0.1 per cent in the first half of the year.Property investment, meanwhile, fell by 10.1 per cent in June, year on year, unchanged from May.
Lynn Song, chief economist for Greater China at ING Bank, said that although new home prices continued to fall in June, prices fell less than in May and more cities saw price increases.
"It shows that the property support measures are starting to take effect. We expect more supportive policies to continue to roll out in the coming months, as stabilising the property market is a key step to restoring confidence,” he said.
Meanwhile, China’s industrial output increased by 5.3 per cent last month from a year earlier, compared to the 5.6 per cent growth in May.
China’s overall urban unemployment rate also stood at 5 per cent in June, unchanged from May.
"Export demand has supported industrial production in the first half of the year, but this factor could begin to weaken in the second half of the year if global growth moderates, and if tariffs come into effect,” added Song.
China is seeing increasing risks from tariffs that have been imposed by the European Union and Thailand, and potentially Indonesia.
The United States has also announced plans for significant tariff increases on a wide range of Chinese goods, while the increasing likelihood of Donald Trump’s re-election as US president is also adding to risks for China and its trade sector.
"Backloaded (and much-needed) fiscal easing will feature more prominently from hereon, but only partially offsetting a more tenuous geopolitical environment for Chinese goods in the second half of the year,” said Louise Loo, lead economist at Oxford Economics.
"We continue to expect the economy to grow at a modest sub 1 per cent sequential pace for the rest of the year, for an annual growth of 4.8 per cent that still undershoots officials’ 5 per cent target.”
The date was released on the same day China’s third plenum, which is expected to see the highest policymaking body set its economic strategy for the next five to 10 years, started in Beijing.
"If there is no shift towards demand-side policies, China may not reach its 5 per cent annual growth target,” added Ng.
"The good news is that the poor economic data may eventually offer an excuse for changing the course.” Larry Hu, chief China economist at Macquarie Capital, expects the Politburo meeting to be held in late July is set to turn more pro-growth, especially in terms of fiscal spending, although a big-bang stimulus is not on the cards.
"The [third plenum’s] agenda is likely to include tax reform, given that unsustainable land revenues for local governments are now a thorny issue facing Beijing,” said Hu.