Chinese security monitors a checkpoint as the Communist Party’s Central Committee holds its third plenum meeting in Beijing, China, on July 15, 2024.
| Photo Credit: AP
China posted lower than expected growth in the second quarter on July 15, with all eyes on how top officials gathering for a key meeting in Beijing might seek to tackle the country’s deepening economic malaise.
The world’s second-largest economy is grappling with a real estate debt crisis, weakening consumption, and an ageing population.
Trade tensions with the United States and the European Union, which have sought to limit Beijing’s access to sensitive technology as well as putting up tariffs to protect their markets from cheap, subsidised Chinese goods, are also dragging growth down.
And on Monday, official statistics showed the economy grew by only 4.7% in the second quarter of the year. It represents the slowest rate of expansion since early 2023, when China was emerging from a crippling zero-COVID policy that strangled growth. Analysts polled by Bloomberg had expected 5.1%.
Retail sales — a key gauge of consumption — rose just two percent in June, down from 3.7% growth in May. “The external environment is intertwined and complex,” the National Bureau of Statistics said.
“Domestic effective demand remains insufficient and the foundation for sound economic recovery and growth still needs to be strengthened,” it added.
Party is planning “major” reforms: Xi
The figures came the same day that China’s ruling Communist Party kicked off a key meeting led by President Xi Jinping focussed on the economy, known as the ‘Third Plenum.’
The Chinese leader delivered a “work report” at the opening of the meeting, state news agency Xinhua said. He also “expounded on a draft decision of the CPC Central Committee on further comprehensively deepening reform and advancing Chinese modernisation”, it added. Beijing has offered few hints about what might be on the table.
Mr. Xi has said the party is planning “major” reforms. Analysts are hoping those pledges will result in badly needed support for the economy. “The four-day meeting of the country’s top governing body couldn’t come soon enough,” Harry Murphy Cruise, an economist at Moody’s Analytics, said in a note. But, he said, “while the case for reform is high, it’s unlikely to be a particularly exciting affair”.
“Instead, we expect a modest policy tweak that expands high-tech manufacturing and delivers a sprinkling of support to housing and households,” he added.
Meeting intended to long-term ideas and structural reforms
The People’s Daily, the Communist Party’s official newspaper, appeared to confirm lower expectations when it warned last week that “reform is not about changing direction and transformation is not about changing colour”.
Ting Lu, chief China economist at Nomura, said the meeting was “intended to generate and discuss big, long-term ideas and structural reforms instead of making short-term policy adjustments”.
The Third Plenum has previously been an occasion for the party’s top leadership to unveil major economic policy shifts.
In 1978, then-leader Deng Xiaoping used the meeting to announce market reforms that would put China on the path to dazzling economic growth by opening it to the world.
And more recently following the closed-door meeting in 2013, the leadership pledged to give the free market a “decisive” role in resource allocation, as well as other sweeping changes to economic and social policy.
Beijing aims for five percent growth this year
Beijing has said it is aiming for five percent growth this year — enviable for many Western countries but a far cry from the double-digit expansion that for years drove the Chinese economy.
But the economic uncertainty is also fuelling a vicious cycle that has kept consumption stubbornly low.
Among the most urgent issues facing the economy is the beleaguered property sector, which long served as a key engine for growth but is now mired in debt, with several top firms facing liquidation.
Authorities have moved in recent months to ease pressure on developers and restore confidence, including by encouraging local governments to buy up unsold homes.
Analysts say much more is required for a full rebound, as the country’s economy has yet to bounce back more than 18 months after damaging COVID-19 restrictions ended.
