China’s economic growth is slowing, and the government’s not doing much about it

China is slowing rapidly, and the government is taking only modest steps to prevent the world’s second-largest economy from contracting completely..

Why this is important: While lagging behind the U.S. in size, China’s economy has been the largest source of growth for global GDP over the past two-plus decades — that is, the global engine of corporate profits, investment activity and demand for goods.

Running News: A raft of disappointing economic updates this week showed that Chinese growth is still sputtering on several fronts.

  • Its industrial sector again slowed down. Industrial production rose just 3.8% in July from a year earlier – and below expectations of 4.5%.
  • The China’s housing crisis It keeps hurting. Fixed investment — of which housing is a key component — rose just 5.7% in the first seven months of the year compared to the same period in 2021. (In 2021, this figure was 10.3% higher than in July. )
  • Customers are not picking up the slack either. Retail sales were down 2.7% year-over-year in July, well below expectations of 5%.

Reference: In recent years, faced with a recession, Chinese policymakers have quickly turned to tried-and-true tools to try to kick-start growth in shorts. It includes…

  • Pouring money into public infrastructure investment.
  • Engineering a credit boom to boost household spending.
  • Delivered sharp interest rate cuts.

Intrigue: Despite China’s current economic woes, there is little indication that the government is trying to decisively boost growth.

  • During past recessions, China’s economy has seen the broad scale of all forms of debt — known as “gross social financing” — rise, a sign that the government is eager to increase debt to offset the downturn.
  • A report appeared on Friday Total social financing is much lower than expectedBecause the government is not willing to use the debt-driven boom as a source of growth.

yes but: The People’s Bank of China has cut interest rates One-tenth of a percent on Monday – Most analysts think the move is modest, and economic activity is unlikely to pick up again.

Bottom line: The ruling Chinese Communist Party knows that China’s economic growth of the past few decades is unlikely to be matched. But unlike decades past, they don’t seem particularly concerned about it.

  • For the rest of the world, this could mean that China will be less of a reliable engine of growth in the coming years.

Source link

Leave a Comment