All 24 members attending the recent Politburo meetings in Beijing spoke of how China’s economy needs help. This is a big difference from a year ago. Then the authorities refused to acknowledge China’s huge economic challenges. The admission of trouble has emerged only gradually during the spring Communist Party meetings: first the Two Sessions, then the spring Politburo, then the Third Plenum in early July and now these most recent meetings. Through this agonizing process, Beijing has taken some remedial steps but nothing large or forceful enough to meet the challenge. Even this latest meeting has produced more talk than action or even descriptions of planned actions.
The sad state of China’s economy is plain in most recent data and how Beijing’s actions to date have failed to turn things around. July housing sales, according to the country’s top 100 property developers, came in some 20 percent below last year’s levels. The National Bureau of Statistics’ purchasing managers index (PMI) came in at 49.4 in July. Any reading below 50 indicates a contraction. Especially disappointing was the lower 49.3 reading for the new orders subcategory and 48.5 reading for export orders. Non-manufacturing’s PMI fell in July to 50, hardly something that anyone would describe as robust.
Among other things, it is clear from this that Beijing’s biggest effort to date has fallen far short. This past spring, Beijing launched a 1 trillion yuan (about $140 billion) program to support real estate markets by buying up some of the large number of unoccupied dwellings. The effort was from the start fighting an uphill battle. Because for years after the crisis broke in 2021 Beijing had ignored the needs of property markets, the troubles had time to metastasize throughout financial markets and the economy. What is more, the program was simply too small. Consider that the funds dedicated were only a fraction of the initial $300 billion 2021 failure of Evergrande, much less the failures that have taken place since then.
To reinforce the stimulative efforts for real estate, Beijing has also prevailed on the People’s Bank of China (PBOC) to reduce interest rates. But the Bank has moved slowly and in baby steps. In the past two years, the cumulative rate cuts have amounted to a mere 45 basis points (hundredths of a percentage point.) That is hardly the kind of movement needed to inspire households, homebuyers, and businesses, already shaken by the property crisis and the overall slowdown in China’s economy. Indeed, the small size of these rate cuts may actually constitute a restrictive measure more than a stimulative one. Since Chinese inflation during this time has dropped from about 2 percent a year to about zero, the real cost of borrowing, despite the drop in nominal interest rates, has actually increased.
China’s problems in this regard are especially apparent in how well South Korea and Taiwan are doing in some of these industries, so much so that buyers tolerate longer waits for delivery rather than turn to Chinese sources.
Now with this latest CCP meeting, Beijing has promised still more help for the economy. But there are no concrete plans behind the promise. CCP leaders clearly know of an urgent need, and they know that past efforts have failed to measure up to the need. Yet, they have not even offered the outlines of additional steps. It almost seems as though the leadership in Beijing has no idea what to do.
