China's economic growth sharply decelerated
China's External Trade Is Slowing Down, but the Country Is Facing a Consumption Lull. Correspondingly, the Economic Growth Is Stuttering. Reforms Are Needed.
The beginning of an important meeting of the Communist Party of China on the future course of the second largest economy is accompanied by weak economic data: According to the Beijing Statistics Bureau, China's economy grew by 4.7% in the second quarter and slower than most analysts had expected in the preliminary estimate. The growth rate was also lower than the growth rates of the two previous quarters, which had reached 5.3% and 5.2% respectively.
The publication of the data fell on the same day that the party leadership in Beijing convened for its so-called Third Plenum. This meeting of the Central Committee, which usually only takes place every five years, has historically set important switches for the long-term economic development of the country.
The most famous Third Plenum was in 1978, when far-reaching reforms were initiated, which are considered the beginning of China's reform and opening policy. This time, the meeting is taking place with significant delay, which caused unease in advance.
High-Tech Plans to Take Center Stage
The four-day session, according to economic representatives, is a good opportunity for Beijing to generate a sense of momentum and give the economy and markets a boost. Analysts had dampened expectations for short-term stimuli in advance.
"The Third Plenum will put collective efforts in the foreground to help China achieve its goals of technological self-sufficiency and industrial modernization," believes Jeroen Groenewegen-Lau from the China Institute Merics in Berlin: "Previous wealth losses will be accepted," so the China expert. It is unclear when and whether any successes for the population will come, and the plenum is expected to provide no precise information on this.
China's state media also focused on the efforts of the leadership to make China a High-Tech Power in the run-up to the meeting. It is calculated that a "plan for the continuous deepening of reforms" will be presented, as the state newspaper "Global Times" quoted unnamed experts shortly before the plenum.
The party meeting is taking place in a time of "change, unlike any other in a century," it was announced. A clear way for "China's pursuit of a high-quality development path" will be shown.
Short-Term Aid Remains on the Sidelines
Once again, the "new productive forces" are invoked. With the term coined by State and Party Chairman Xi Jinping, it is about driving economic development through the creation of modern industrial sectors. The drive to become a High-Tech Nation sees China's leadership also as an answer to a perceived increasingly hostile West.
The building of a modern industry is certainly sensible, but other measures are also required to address existing problems, economists warn. To grow sustainably, China should stimulate domestic demand and orient its economy towards consumption, advised the International Monetary Fund (IMF) recently.
During the implementation of X's High-Tech Ambitions, concerns of many Chinese citizens are currently causing delays, critics argue. Consumption is stalling as many households prefer to save money for uncertain times. The situation is also evident in other economic data. Retail sales, an important indicator of Chinese consumers' purchasing power, grew by only 2% in June compared to the previous year - the weakest value in over a year.
Many families are particularly worried about the persistent crisis on the real estate market and high unemployment. Young people in particular are struggling to find jobs. Observers fear that the "Third Plenum" may not provide the anticipated answers to these issues.
Given the economic challenges China is facing, such as slowing external trade and a consumption lull, it's crucial for Handel, an economic analyst, to closely monitor China's economic situation. Despite the weakness in China's data, Handel believes that the Third Plenum could serve as an opportunity for China to focus on its high-tech plans and industrial modernization, potentially ensuring China's economic resilience in the face of a challenging global economy. However, Handel also emphasizes the need for China to address its domestic consumption issues and stimulate demand, as suggested by the International Monetary Fund, to ensure sustainable economic growth.
