Just about every indicator in China these days tells of a troubled economy. And Beijing is running out of options.
China’s economy is in a sorry state. The nation’s gross domestic product (GDP) for the second quarter disappointed both official and unofficial expectations. All sectors showed weakness, though some worse than others. China will fail to achieve its already reduced 5% real growth target for this year. The blame for this sorry state of affairs lies mostly with Beijing’s planners. Worse, policy makers have few options to turn things around any time soon.
GDP in the spring quarter grew 6.3% in real terms from the second quarter a year ago. That seemingly strong showing resulted more from how depressed the economy was in early 2022 than from any recent momentum. This most recent quarter’s real GDP was only 0.8% above the first quarter reading, a major slowdown from quarterly growth of 2.2% recorded for that first quarter. The brief January-March surge gave a decidedly false signal. Mostly it reflected a short-lived jump in consumer spending after Beijing finally gave up the zero-Covid policies of seemingly endless lockdowns and quarantines. But even as that consumer spending flow was taking place, evidence behind the aggregates signaled that it occurred almost exclusively among the wealthy. Now more recent figures confirm how weak the economy always was.
June’s report on consumer spending was most telling. May, still reflecting the post-zero-Covid exuberance, showed a 12.7% growth in retail sales over year-ago levels, but June saw a very modest advance of only 3.1%. This shortfall clearly reflects other signs that the Chinese householder has lost confidence amid the news of declining real estate values and because the zero-Covid lockdowns raised questions about the average working person’s ability to earn consistently. Instead of spending, fearful and wary Chinese householders are socking money away in savings. Household savings deposits rose some 18% during the first half of 2023. Those funds could be ammunition for a spending surge, but only if Chinese consumers change their feelings radically, and that does not seem likely.
