China’s economy struggled to gain steam in July as economic activities unexpectedly slowed, which prompted a key policy interest rate cut by the central bank while analysts called for more supportive policies to bolster the economy.

Industrial production, a gauge of activity in the manufacturing, mining and utilities sectors, rose by 3.8 per cent in July, year on year, the National Bureau of Statistics (NBS) confirmed.

This was below estimates for a rise of 4.6 per cent, according to Wind, a leading provider of financial information services in China, and down slightly from 3.9 per cent growth in June.

Retail sales rose by 2.7 per cent in July, well below an expected rise of 5.3 per cent and down from 3.1 per cent growth in June.

Fixed-asset investments – a gauge of expenditure on items including infrastructure, property, machinery and equipment that Beijing has relied on this year to stem downturn risks – rose by 5.7 per cent in the first seven months, year on year, down from a rise of 6.1 per cent in the first six months of the year.

“Domestic demand softened due to Covid outbreaks in many cities and the worsening sentiment in the property market,” said Zhang Zhiwei, chief economist with Pinpoint Asset Management. “The trouble in the property market is getting worse, as suspended construction in some projects make homebuyers hesitant to purchase new homes.”

Prior to Monday’s data release, China’s central bank, the People’s Bank of China (PBOC), cut the rate of one-year medium-term lending facilities, a key policy interest rate, by 10 basis points to 2.75 per cent from 2.85 per cent, in efforts to boost economic activities. It marked the first such cut since mid-January.

But analysts said more policy support is needed to tackle weakness in the broad economy.

“The government needs to take action quickly to turn around such expectation before it spills over to the rest of the economy. The PBOC rate cut today is one step in the right direction, but monetary policy by itself may not be enough to deal with the problem. The property sector policy and the zero-Covid policy also need to be considered,” Zhang said.

NBS spokesman Fu Linghui said at a press conference on Monday that authorities will focus on expanding domestic demand and stabilising employment and prices to keep major economic indicators “within an appropriate range”.

“We must be aware that the stagflation risks in the world economy are increasing, and the foundation for the recovery of the domestic economy is yet to consolidated,” Fu said.

The urban surveyed jobless rate, an imperfect measurement of unemployment in China that does not include figures for all of the nation’s tens of millions of migrant workers, stood at 5.4 per cent in July from 5.5 per cent in June.

The jobless rate for the 16-24 age group rose to 19.9 per cent in July, up from a record 19.3 per cent in June.

China is dealing with new coronavirus outbreaks and their resulting lockdowns, which could affect the strength and longevity of that rebound.

Last month, China’s top leadership defended its zero-Covid policy in a tone-setting economic conference, but also softened its language on achieving the full-year growth target of “around 5.5 per cent”.

by Frank Tang & Orange Wang in SCMP, Aug 15, 2022
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