China presents weak GDP figures at the start of economic meeting
The second largest economy in the world is currently fighting an immense real estate crisis. Youth unemployment is high, domestic consumption is weak. In addition, geopolitical and trade tensions with the USA and Europe, particularly the tariff policy in the face of high Chinese subsidies for own key industries, are adding to the challenges.
Data on foreign trade released on Friday showed that China had only partially recovered from the still noticeable consequences of its restrictive Corona-Policies: Exports of goods and services increased significantly by 8.6 percent year-on-year, but imports surprisingly decreased by 2.3 percent, indicating weak domestic demand.
Now, figures on Gross Domestic Product (GDP) in the second quarter have been released. The Chinese GDP had grown by 5.3 percent in the first three months of the year. Analysts surveyed by Bloomberg had predicted a growth of 5.1 percent for the second quarter, but it was only 4.7 percent.
The environment is "complicated and intricate," explained the Statistical Authority. Domestic demand remains insufficient and the basis for a healthy economic recovery must continue to be strengthened. Retail sales grew by only 2 percent in June. They had increased by 3.7 percent in May. Industrial production also declined slightly.
The focus is now on the Third Plenum, which is being led by State Council Chairman Xi Jinping. He presented a "Work Report" at the beginning of the four-day meeting, according to the official Xinhua news agency. Xi also explained a draft decision of the Central Committee of the Communist Party for further comprehensive deepening of reforms and further advancement of modernization of China. The State Council Head had recently announced "significant" reforms.
Observers expect only a "modest" change in policy to boost high-tech production and support housing and households in the country, as Harry Murphy Cruise of Moody's Analytics said. The Communist Party's newspaper had warned in the past week that the reforms of the Third Plenum were "not about a policy shift." China expert Ting Lu from Nomura expects a discussion of "major, long-term ideas and structural reforms" instead of "short-term political adjustments."
The Chinese leadership expects a growth of five percent this year - which is low under western perspectives, but still far from the double-digit growth rates that have determined the Chinese economy for years. Beijing still holds onto this goal.
However, Larry Hu from Macquarie Group said that the declining dynamics in the second quarter without further political support would likely mean that the five-percent target would not be reached. "Domestic demand remains very weak." The real estate sector remains the greatest burden.
- The Statistics Authority emphasized the need for strengthening the basis for a healthy economic recovery, focusing on enhancing domestic demand, as the alignment of BIP-Numbers fell short of expectations.
- At the economic meeting, State Council Chairman Xi Jinping presented a "Work Report," highlighting the Communist Party's draft decision for comprehensive reforms and modernization, aiming to boost high-tech production and support households, according to Bloomberg.
- Geopolitical tensions, including trade disputes with the USA and Europe, have contributed to China's economic struggles, as the second-largest economy battles an immense real estate crisis and a weak domestic consumption, partly due to the Coronavirus' impact.
- Analysts, such as Harry Murphy Cruise from Moody's Analytics, anticipate a "modest" change in policy to mitigate real estate issues and support households, but they do not expect a significant policy shift, as China's Communist Party's newspaper has implied.
- As China strives to meet its five-percent growth target for this year, challenges persist, including the weak domestic demand and the struggling real estate sector, despite optimism from experts like Ting Lu from Nomura that major, long-term reforms will be discussed.
