China Keeps Getting Bad Economic News

Residential buildings under construction by Chinese real estate developer Vanke in Hangzhou, in eastern China's Zhejiang Province, on March 15, 2024. (STR/AFP via Getty Images)

Commentary

China’s economic prospects have not improved. The authorities in Beijing no doubt expected or hoped that recent efforts at economic stimulus would quickly bear fruit, most especially a large dedication of public funds to bolster the housing market and begin to remedy the country’s long-running property crisis.

Perhaps improvements will emerge in time, but figures and commentary in May suggest no good news has emerged yet, and maybe not for a long time.

In many ways, the property sector lies at the root of China’s economic troubles and is the focus of Beijing’s latest stimulus efforts. The problems began with the failure of large property developers in 2021. The authorities foolishly ignored the sector’s issues until late last year. After the halting started, Beijing advanced a program designed to remove the weight of excess housing on real estate values and encourage more household interest in buying.

Interest rate cuts by the People’s Bank of China (PBOC) constitute some of this program, although the bank has been less than responsive so far. Beijing has removed the longstanding interest rate minimums on mortgages and made special provisions for Chinese banks to lend more to homebuyers. Most dramatically, this latest effort has used central government credit to raise some 1 trillion yuan (about $140 billion) in part to buy up vacant properties.

So far, realty has failed to respond. For the first five months of this year, home sales were 30.5 percent lower than in the same period a year ago. New home prices have continued to decline as well. This past May, residential real estate prices across major Chinese cities were 4.3 percent below levels of May 2023, a downward acceleration from the 3.5 percent decline recorded for April.

Real estate prices continue to decline, and with the wealth of most Chinese tied up in their house, it should be little surprise that consumer spending remains lackluster. Retail sales in May were 3.7 percent above May last year, and a stronger showing than April’s 2.3 percent gain, but things are still well under Beijing’s 5 percent real growth target of the year. At the same time, private businesses in China remain highly reluctant to invest in expansion or modernization, or hiring, for that matter.

Industrial production seems to offer a bright spot. It rose 5.6 percent in May compared with year-ago levels. But even this news offers scant reason for cheer, much less renewed optimism. Much of this surge reflects Beijing’s push to create new high-tech production abilities. Still, since production already exceeds domestic demand, the whole picture raises questions about where China’s beefed-up factories will sell their products. Both the United States and the European Union have placed tariffs on Chinese-made electric vehicles and otherwise shown hostility to China trade. Even in this special area, there are signs of a slowdown. May’s gain was significantly below April’s figure of 6.7 percent. 

Casting a still darker cloud on this far-from-bright economic landscape is the news that foreign investment into China continues to decline. China has long counted on foreign investment to advance its technological strength and economic dynamism. In the first five months of this year, Beijing’s National Bureau of Statistics noted that foreign direct investment into China amounted to 412.5 billion yuan (about $568 million). That is some 30 percent below the level of such flows during this time last year. What is more, these latest figures show a faster rate of decline than in the January–April period and the 12th consecutive month of declining direct foreign investment into China.

Planners in Beijing are surely telling their superiors that the policies recently implemented to remedy the property crisis will take effect in the fullness of time. No doubt, Xi Jinping and others in authority want to believe that contention. It may even be true. But the figures so far say that such help is still distant at best. Meanwhile, the authorities will face a dispirited Chinese public and business community.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.