Like parents anxiously perusing a child’s report card after a gruelling term of learning curves, eyes that digest Beijing’s midyear economic report on Monday will react accordingly.
On the first day of the reform-centric third plenum, seeing a half-year growth rate above 5 per cent – in line with the annual target – may not be enough to widen eyes. But it would reflect China’s economic resilience and underpin Beijing’s insistence that the 2024 target of “around 5 per cent” can be met.
That is the message repeatedly relayed to investors and consumers as leadership looks to get China’s economic engine purring like it used to.
However, on the minds of many analysts is a contrasting grim reality seen through the lens of high-frequency data, proxy indicators and some official parameters – revealing structural challenges that await solutions from the nation’s leaders.
“Everyone feels that the economy has not yet bottomed out, and there is huge uncertainty about how it will touch bottom,” said Liu Yuhui, an outspoken researcher with the China Chief Economist Forum, a Shanghai-based think tank.
“People’s expectations have persistently weakened over the past three years. The triple threat – demand contraction, supply shocks and weak expectations – is still pervasive.”
Whether it be from investment returns, employment or prices, enterprises and individuals are under pressure
While Beijing has opted not to aggressively deploy funds to stimulate consumption and shore up businesses, Liu said leadership should expand its balance sheet to get the economy on surer footing.
Li Ke’aobo, executive deputy director of Tsinghua University’s Academic Centre for Chinese Economic Practice and Thinking, also pointed to a gulf between expectations and how businesses and households actually feel on the ground.
“The actual sense of feeling and strength of growth are lower than expected, with private investment stagnating and people’s wealth shrinking,” he said at a forum last week. “Whether it be from investment returns, employment or prices, enterprises and individuals are under pressure.”
The two are among a surfeit of economists calling for more government action to address major economic challenges, including a real estate crisis and sometimes crippling levels of local-government debt.
The four-day third plenum will see around 370 Communist Party elites discuss a raft of issues revolving around the stated goal of building a high-standard socialist market economy and fostering high-quality development.
During his address at the recent “Summer Davos” in Dalian, Premier Li Qiang assured business leaders at home and abroad that the Chinese economy, which had expanded by 5.3 per cent in the first three months of the year, sustained that momentum heading into the second quarter.
Results of a recent Wind Information survey show that most analysts expect that China’s GDP grew by about 5.08 per cent in the second quarter, and 5-5.2 per cent in the first half of the year.
On Tuesday, the No 2 official also sought to inject a dose of confidence in a dialogue with entrepreneurs, proclaiming that the economy would prevail amid rising complexities.
However, the actual situation on the ground may be far less cut and dry.
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China’s third plenum: what to expect from the much-delayed policy meeting
China’s third plenum: what to expect from the much-delayed policy meeting
In the face of tepid domestic demand, white-hot competition has snared almost all industries and suppressed business profitability, to the point that even leading industry players have voiced concerns.
Robin Zeng, founder of the world’s largest battery maker, CATL, said at a forum last month that the focus should not be on a price war, but on the value of products over their entire life cycle.
Meanwhile, lay-offs and unemployment are on the rise as the nation’s economic slowdown takes a toll on the workforce, with key players almost universally reducing headcounts and slashing salaries.
A Post review of annual reports from 23 Chinese firms – including the top five companies by market cap in real estate, internet, automotive and financial industries, as well as three prominent electric car makers – 14 had downsized their workforces in 2023 while others cut staff-related expenses.
Analysts and economists also warn that some data indicators do not bode well for consumption, credit demand, profitability and employment prospects.
Reflecting feeble credit demand from Chinese households and companies, the M2 money supply – encompassing the aggregate value of liquid assets, including currency in circulation and private deposits – saw record-low growth of 6.2 per cent in June from a year prior while falling short of an economist consensus of 6.8 per cent. The growth has been continuously trending down in recent months, according to People’s Bank of China data released on Friday.
If some short-term problems are not resolved now, it will affect long-term GDP growth potential
China’s total social financing in the first half of 2024 grew by 18.1 trillion yuan (US$2.49 trillion), or 3.45 trillion yuan less than a year prior. New yuan loans in the first half grew by 12.46 trillion yuan, or 3.15 trillion yuan less than a year prior, the central bank said.
While profits among industrial enterprises increased by 3.4 per cent, year on year, in the first five months of the year, profit growth in May slackened to a mere 0.7 per cent, according to the National Bureau of Statistics.
Also, youth unemployment remained in double digits in May at 14.2 per cent.
But some bellwether metrics, including trade, show that economic growth still has legs. Exports surged 8.6 per cent in June from a year prior. And total trade in the first half of 2024, as measured in US dollars, was up 2.9 per cent while the trade surplus rose to US$435 billion, the most since the 1990s.
Fixed-asset investment is expected to have grown in June by 3.9 per cent, year on year, according to a Reuters poll, and retail-sales growth may come in at around 3.99 per cent, according to Wind data.
In the face of the economy’s mixed performance, more prominent experts have joined the chorus of calls for Beijing to show a greater sense of urgency through real action.
Comparing what the Chinese economy has been through in the past two to three years to a minor cold or fever, famed economist Li Daokui warned if this “minor illness” cannot be cured in time, it could worsen and become “pneumonia or heart disease”.
“One may not be able to run fast if his heart functions are impaired,” he said. “If some short-term problems are not resolved now, it will affect long-term GDP growth potential.”
To reflate the economy and, more importantly, see those growth benefits trickle down to a broader swathe of enterprises, Beijing is also being advised to be more proactive in terms of spending and bond issuances for the rest of 2024.
Zhang Bin, vice-director of the Chinese Academy of Social Sciences’ Institute of World Economics and Politics, said that deleveraging is the last thing a government should do when the economy cools down.
“There could be a stampede if the government seeks to deleverage when the private sector is already [doing so by] shedding its debt,” said Zhang, who attended a meeting held by President Xi Jinping in May to put forth policy recommendations.
China issued 1.5 trillion yuan worth of special bonds in the first half of the year, according to Shanghai Securities News, compared with the 3.9 trillion yuan approved at the parliamentary session in March, and the pace of issuance lags the corresponding period in 2023.
Zhang said weak credit demand creates a vicious circle and requires decisive actions “much bigger than expectations” to turn the tide.
