BEIJING—A broad array of Chinese data on Tuesday highlighted intensifying pressure on the economy from multiple fronts, prompting Beijing to cut key policy rates to shore up activity.
Just before the release of a batch of July data, China’s central bank unexpectedly chopped one set of key interest rates, and followed it with cuts on other rates hours later, underlining the rapid loss of the post-COVID economic rebound that has shaken global financial markets.
Tuesday’s data released by the National Bureau of Statistics (NBS), which comes on top of a raft of weak indicators from last week, showed retail sales, industrial output, and investment all growing at a slower than expected pace—indicating the engines of business and consumption in the country’s economy were severely underpowered.
Additionally, the Chinese regime suspended publishing youth jobless data, which hit a record high of 21.3 percent in June.
“All the main activity indicators undershot consensus expectations in July, with most either stagnant or barely expanding in month on month terms,” said Julian Evans-Pritchard, economist at Capital Economics.
“And with financial troubles at developers such as Country Garden likely to weigh on the housing market in the near-term, there is a real risk of the economy slipping into a recession unless policy support is ramped up soon.”
Nomura analysts were equally downbeat on China’s economic outlook.
“We believe the Chinese economy is faced with an imminent downward spiral with the worst yet to come, and the rate cut this morning will be of limited help,” they said.
Most economists see downside risk to Chinese growth but they do not expect a recession.
Industrial output grew 3.7 percent from a year earlier, slowing from the 4.4 percent pace seen in June, the NBS data showed, and was below expectations for a 4.4 percent increase in a Reuters poll of analysts.
Retail sales, a gauge of consumption, rose 2.5 percent, down from a 3.1 percent increase in June and missed analysts’ forecasts of 4.5 percent growth despite the summer travel season.
It was the slowest growth since December 2022, showing how much of a challenge authorities face as they try to make consumption the key driver of future economic growth.
Asian stocks stalled at one-month lows, the yuan hit a 9-month nadir while the dollar held broadly firm after the weak Chinese data and latest policy easing measures.
Sovereign bond yields fell to three-year lows, and benchmark stock indexes were down.
Record-low credit growth and rising deflation risks in July necessitated more monetary easing measures to arrest the slowdown, market watchers said, while default risks at some housing developers and missed payments by a private wealth manager also soured market confidence.
Nie Wen, an economist at Hwabao Trust, expects special bonds to be introduced urgently and said the probability of a reserve requirement ratio (RRR) cut in the short run is relatively large.
The catering sector, which reaped benefits from the COVID-19 reopening, saw slower revenue growth in July from June. Investment in the private sector shrank 0.5 percent in the first seven months, extending 0.2 percent decline in the first half of 2023.
The persistent drag in the property sector, mounting local government debt pressure, high youth jobless rate, and cooling foreign demand continue to be major impediments to fostering a sustainable economic revival.
Other data on Tuesday showed fixed asset investment expanded 3.4 percent in the first seven months of 2023 from the same period a year earlier, versus expectations for a 3.8 percent rise. It grew 3.8 percent in the January-June period.
Investment in the property sector tumbled 8.5 percent year-on-year in January-July, after shrinking 7.9 percent in January-June, extending its fall for the 17th consecutive month.
The nationwide survey-based jobless rate climbed slightly to 5.3 percent from 5.2 percent in June. Among OECD members, the average unemployment rate was 4.8 percent, with youth joblessness around 10 percent.
($1 = 7.2838 Chinese yuan renminbi)
