In this photo released on July 18, 2024, by Xinhua News Agency Chinese President Xi Jinping speaks at the third plenary session of the 20th Communist Party of China (CPC) Central Committee held from July 15 to 18 in Beijing. China’s ruling Communist Party wrapped up a top-level meeting by endorsing policies aimed at advancing the country’s technological power and fortifying its national security.
| Photo Credit: AP

Beijing’s leaders vowed on July 18 to resolve “risks” plaguing China’s economy, but were yet to offer any concrete steps to pull the country out of its financial woes.

The world’s second-largest economy is grappling with a property debt crisis, weakening consumption, and an ageing population.

All eyes were on how this week’s Third Plenum meeting of the Communist Party in Beijing, attended by President Xi Jinping, might tackle that deepening economic malaise.

But few new policies were announced as the meeting wrapped up Thursday.

State news agency Xinhua said they had agreed to “prevent and resolve risks in key areas such as real estate, (and) local government debt”.

They also vowed to “actively expand domestic demand”, state media reported, after data this week showed retail sales — a key gauge of consumption — rose just 2% in June.

Gary Ng, a senior economist at Natixis, said the readout offered “nothing out of expectation as it just confirms existing policies.”

‘Market failures’

But Hoo Tiang Boon at Nanyang Technological University in Singapore told AFP the statement “acknowledges certain risks and obstacles to the Chinese economy”.

“It’s a sign that Beijing recognises the problems, but I’m not sure if they know what are the effective measures to address them,” he said.

The Third Plenum has for decades 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.

Echoing past plena, top officials promised Thursday to “give fuller play to the role of market mechanisms”.

But they also said they would “make up for market failures” and “smooth the circulation of the national economy”.

‘Positive signals’, but few specifics

Lynn Song, ING’s Chief Economist for Greater China, told AFP the readout offered some “positive signals”.

But, he said, the meeting was “not a platform for pushing specific new stimulus measures”.

“Those who were looking for new signals on the property market will likely be disappointed,” Song said.

“While real estate was mentioned as one of the three key risks China prioritises resolving, there was no further mention of expanding affordable housing nor further specifics on efforts to stabilise the property market,” he pointed out.

The meeting comes just days after China posted official statistics showing the economy grew by just 4.7% in the second quarter of the year.

It represented 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%.

Beijing has said it is aiming for 5% growth this year — enviable for many Western countries but a far cry from the double-digit expansion that for years drove the Chinese economy.

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.

With the country facing those headwinds, this week’s meeting resolved to “strengthen guidance of public opinion and effectively prevent and resolve ideological risks”, according to state media.

Officials also formally removed ex-foreign minister Qin Gang from the ruling Communist Party’s highest decision-making body, and “confirmed” the party’s move to expel former defence minister Li Shangfu.

Both officials disappeared from the public eye last year after just a few months on the job.

 The economic slowdown has wiped almost $200 billion off the luxury sector’s value in recent months.
| Photo Credit: Reuters

The prolonged downturn in luxury spending in China is unlikely to reverse this year, analysts and executives warn, deepening a rout which has wiped almost $200 billion off the sector’s value in recent months.

Profit warnings from Burberry and Hugo Boss and a 27% drop in quarterly sales in China, Macau and Hong Kong from Richemont this week have reinforced concerns about weakness in China, where middle-class shoppers have cut spending on big-ticket items.

According to consultancy Bain, China accounted for 16% of 362 billion euros ($393.8 billion) of global luxury spending last year.

But data on Monday showed China grew much more slowly than expected in the last quarter as a protracted property slump and job insecurity hampered a fragile recovery.

Expectations for the second-quarter earnings season were already low in the luxury sector, but the slew of bleak reports have dashed hopes of a recovery in the second half.

“China is in the repair shop,” said Bernstein analysts after a recent visit to the country. Analysts said that Cartier owner Richemont’s quarterly sales report on Tuesday had confirmed their fears about lacklustre demand in mainland China.

According to Bain, which in June predicted this year would be the weakest for the global luxury market since the height of the pandemic, China’s richest people are avoiding flaunting their wealth in favour of more discreet fashion.

Jitters about China have spooked investors, which has wiped 180 billion euros off the sector since March.

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.

EV shift:China’s market has stagnated due to the shift to EVs.
| Photo Credit: AFP

Chinese auto sales slumped in June as the domestic economy remained sluggish, but buoyant exports offset the decline at home, an industry association said Wednesday.

Sales in China dropped 7.4 per cent compared to a year earlier to 1.8 million cars, while exports rose 29 per cent to 400,000 units, the China Association of Automobile Manufacturers said in a monthly report.

In the first six months of the year, exports rose 31.5 per cent while domestic sales edged up 1.6 per cent. The surge in exports comes at a time of growing concern in Europe and the United States that inexpensive China-made cars could overwhelm established automakers in the West.

While much of the concern has been focused on China’s flashy and moderately priced electric cars, export growth has been concentrated mainly in gasoline-powered vehicles. They climbed 36 per cent in the first half of the year and accounted for 78 per cent of vehicle exports. Chinese EV exports were down 2.3 per cent, while hybrids jumped 180 per cent from a smaller base.

The exports have helped make up for weaker sales of gasoline vehicles in China as the overall market has stagnated and buyers have shifted to electric vehicles and hybrids.

Russia is by far the largest and a still rapidly growing export market, where Chinese makers have filled a void left by the departure of other automakers after the Russian invasion of Ukraine. Other sizeable markets include Brazil and Mexico in Latin America, the United Arab Emirates and Saudi Arabia in the Mideast and Belgium and the UK in Europe.

The European Union imposed provisional duties on Chinese electric vehicles last week, alleging that government subsidies give automakers in China an unfair advantage.

Chinese makers are moving production overseas. BYD, the country’s largest EV maker, opened a plant in Thailand last week and plans to build factories in Brazil, Hungary and Turkey.

The sales drop in China was the second monthly decline in a row. Separate figures tabulated by the China Passenger Car Association show three straight months of falling sales. A severe real estate slump has dampened economic growth and depressed consumer confidence.

Cautious approach: Banks are reluctant to lend to housing projects fearing more bad loans. File
| Photo Credit: Reuters

When China’s local governments began compiling a “whitelist” of housing projects for loans earlier this year, troubled developers hoped it would open a spigot of credit for a sector that remains a major stumbling block to a broad economic revival.

Four months later, new funding is only coming by the drip, reflecting the deep-seated caution about the outlook for China’s residential property market, according to Reuters interviews with bankers and developers.

Banks have been reluctant to heed Beijing’s repeated nudges to bolster credit to the embattled sector given the risks of more bad loans, further undermining confidence in the crisis-hit property market seen as crucial to shoring up a shaky economy.

New loans were only approved since late March, according to the sources, which surprised companies and investors who had expected fresh lending for developers at the start of the ‘whitelist’ programme months earlier.

The main hurdle to granting more new bank loans is the current weak property market conditions, said Lawrence Lu, managing director at S&P Global Ratings.

“Developers need to have a project in place to get funding … the issue now is whether the project can generate sufficient cash flow to repay the debt,” he said.

At least six defaulted private developers received bank approvals for new loans for “whitelist” projects since late March, according to one company statement, senior executives of two developers and two other people with knowledge of the program.

Those new loans were granted for fewer than a handful of projects and lending received so far was equivalent to hundreds of thousands of dollars per project, three of the people told Reuters.

That’s just a drop in the ocean given the vast stock of unfinished housing—a Reuters report in March estimated that the “whitelist” programme covers projects that need fresh financing of 1.5 trillion yuan.

The loans are only granted depending on the progress of construction, the three sources said, adding the volume of approval was “insignificant” given the huge number of uncompleted homes.

Frozen projects

The slow roll-out of the “whitelist” lending reflects the challenge facing Beijing which has pushed banks to speed up approvals of new loans to cash-starved private developers to complete their projects.

Under the “whitelist” mechanism launched in January, local governments nominate projects and state-owned as well as commercial banks are encouraged to provide lending. By March-end, banks had approved the equivalent of $72 billion in loans for 2,100 housing projects, state media reported.

Developers and bankers said many of these approvals restarted existing loans, rather than providing new credit.

Estimates vary widely, but analysts agree there are tens of millions of uncompleted apartments across China after a building boom turned to bust with the failure of developers. There is no public data available on the scale and terms of lending under the “whitelist” policy.

‘A bad deal’?

One of the six private developers whose projects got bank approval said it had decided to refuse the help.

“We think it’s a bad deal because financing incurs interest,” a senior executive at the developer told Reuters. “Once we use the ‘whitelist’ loans we have to complete the construction. However, we’re not able to sell all of the units under this bad market so it’s only increasing costs for us.”

Some bankers said they would continue to push back on the “whitelist” directive by negotiating with officials and explaining the shortcomings in projects.

Analysts are closely watching out for new reforms from Beijing to address deep-seated economic imbalances. 
| Photo Credit: AFPSTR

China should rely more on structural reforms and less on economic stimulus to drive growth this year, Liu Shijin, a policy adviser to the central bank, said on Wednesday.

Mr. Liu, a member of People’s Bank of China monetary policy committee, said the economy can achieve its growth target of 5% this year but that more effort is needed on both stimulus and structural reforms.

“There is no issue with macroeconomic policies becoming moderately loose and more proactive, but there is a tendency to focus solely on macroeconomic policies and not even remember how to promote some structural reforms,” Mr. Liu said. “The relationship between macro policies and structural reforms may need to be straightened out.”

Investors and analysts are closely watching out for new reforms from Beijing to address deep-seated economic imbalances.

China’s economy can grow at 5%, with only 1% coming from the effect of policy, with the rest from “basic conditions and institutional policy environment”, suggesting reforms are important, he said, adding some reforms could aid growth immediately.

“Some structural reform policies can also have immediate effects, which may be faster than some macroeconomic policies,” Mr. Liu said, amid concerns that reforms may not yield quick economic benefits and that some changes may hurt growth.

Mr. Liu has been calling for reforms to widen migrant workers’ access to public services enjoyed by city dwellers, as well as policies that bolster private entrepreneurship.

At the beginning of the annual parliament meeting last week, Premier Li Qiang announced an ambitious 2024 economic growth target of around 5%.

Chinese leader Xi Jinping has called for patience in a speech released as the ruling Communist Party tries to reverse a deepening economic slump and said Western countries are “increasingly in trouble” because of their materialism and “spiritual poverty.” File
| Photo Credit: AP

China’s economy, the world’s second-largest, is now in deep distress and its successful model of growth for 40 years stands “broken”, a prominent American financial publication has said, noting that signs of trouble extend beyond China’s dismal economic data to distant provinces.

TheWall Street Journal in a major Sunday story wrote that economists now believe China is entering an era of much slower growth, made worse by unfavourable demographics and a widening divide with the U.S. and its allies, which is jeopardising foreign investment and trade.

Also Read | China’s Xi calls for patience as Communist Party tries to reverse economic slump

Rather than just a period of economic weakness, this could be the dimming of a long era, it commented.

“Now the (economic) model is broken,” the financial daily said.

“We’re witnessing a gearshift in what has been the most dramatic trajectory in economic history,” Adam Tooze, a Columbia University history professor who specialises in economic crises, was quoted as saying by The Wall Street Journal.

According to the report, the total debt, including that held by various levels of government and state-owned companies, climbed to nearly 300% of China’s GDP as of 2022, surpassing U.S. levels and up from less than 200% in 2012, according to Bank for International Settlements data.

In Beijing’s corridors of power, senior officials have recognised that the growth model of past decades has reached its limits, the daily wrote.

In a blunt speech to a new generation of party leaders last year, Chinese President Xi Jinping took aim at officials for relying on borrowing for construction to expand economic activities, it added.

“Some people believe that development means investing in projects and scaling up investments,” Mr. Xi said, warning: “You can’t walk the old path with new shoes.” Mr. Xi and his team so far have done little to shift away from the country’s old growth model, the financial daily wrote.

China’s gross domestic product (GDP) grew 5.5% year-on-year in the first half (H1) of 2023, the country’s National Bureau of Statistics (NBS) said in June.

China’s GDP reached 59.3 trillion yuan (about 8.3 trillion U.S. dollars) in the first half, according to the NBS data. In the second quarter, the country’s GDP expanded 6.3% year on year, China’s official media quoted the NBS as saying.

Meanwhile, China on Monday also trimmed for the second time this year its one-year loan prime rate (LPR) by 10 basis points from 3.55% to 3.45% and did not change the five-year rate, which stands at 4.20%, to revive economic growth in the world’s second-largest economy after that of the United States.