Commentary
China’s third-quarter economic data show a continued slowdown, making it unlikely to meet its 2024 gross domestic product (GDP) growth target.
China’s economy shows clear signs of a significant slowdown, as core inflation has dropped to its lowest level in more than three years. This decline raises concerns about the country’s ability to achieve its growth target of roughly 5 percent for 2024.
In August, the consumer price index (CPI), excluding food and energy, increased by just 0.3 percent year-over-year, marking the slowest growth since March 2021. While overall inflation rose by 0.6 percent, this was mainly because of higher food prices caused by adverse weather, yet the figure still fell short of expectations.
Weak demand—coupled with falling prices in key sectors such as electric vehicles and electronics—has intensified deflationary pressures. Without state intervention, the economy risks spiraling into a cycle of declining prices, wages, and corporate revenues. Market sentiment has also been hit hard, with China’s stock indices and currency experiencing sustained losses. Over the past month, the dollar has weakened slightly in anticipation of the Federal Reserve cutting interest rates, but this decline has not provided any boost to the yuan, which remains flat.
A key factor contributing to the modest inflation rise was a surge in food prices. Fresh vegetable prices spiked by 21.8 percent compared with the same period last year, adding 0.44 percentage points to the overall CPI. Despite stimulus measures such as rate cuts and programs like cash-for-clunkers, these efforts have been insufficient to counterbalance the drag from a sluggish housing market and weak consumer confidence. Meanwhile, factory-gate prices have remained in deflation since late 2022, with the producer price index falling by 1.8 percent year-over-year, surpassing the forecasted 1.5 percent drop.
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The slowdown is also apparent in China’s industrial output and retail sales, both of which faltered in August. Industrial output grew at its slowest pace since March, increasing by 4.5 percent year-over-year, down from July’s 5.1 percent. Retail sales, a key indicator of consumer spending, had their second-slowest month of the year, rising by only 2.1 percent compared with 2.7 percent in July. These figures not only missed expectations but also highlighted weakening domestic demand despite August being the peak summer holiday period.
Despite efforts to stabilize the economy, China’s fixed asset investment has slowed considerably. Between January and August, fixed asset investment grew by just 3.4 percent, the slowest pace since December 2023, as the housing market continued its sharp decline. Real estate investment fell by 10.1 percent in the first half of the year, while property sales by floor area dropped by 19 percent year-over-year. Additionally, new construction starts plunged by 23.7 percent compared with the previous year.
The housing crisis is creating what analysts call a “two-speed“ economy, where exports are increasing in volume while domestic demand remains sluggish. Chinese leader Xi Jinping has emphasized the need for China to hit its annual economic growth target, focusing particularly on industrial output, especially in high-tech manufacturing, to offset the impact of the three-year property slump.
The gap between China’s official growth target and the current economic reality suggests that the country will likely fall short of its 5 percent GDP growth target. The emphasis on manufacturing and exports indicates that the Chinese Communist Party (CCP) is aware of the domestic slowdown and is prioritizing economic dominance abroad, even at the expense of the internal economy and citizens’ standard of living.
China’s two-speed economy is facing growing risks as domestic demand remains sluggish, while the country experiences an expanding trade surplus. As this surplus grows, China may face additional tariffs from its trading partners, further hindering growth and exacerbating disinflationary pressures. To mitigate this, the CCP needs to stimulate domestic demand more aggressively to counterbalance the risk of new tariffs slowing economic recovery. However, with a slowing economy and rising youth unemployment, Chinese consumers are reluctant to increase their spending.
Former central bank Gov. Yi Gang recently made a rare public acknowledgment of China’s deflationary challenges, urging policymakers to take immediate action. Speaking at the Bund Summit in Shanghai, Yi emphasized the weakness in domestic demand—especially in consumption and investment—as a critical area that requires stronger fiscal and monetary support. He expressed hope that China’s GDP deflator, a broad measure of price levels, could turn positive in the coming quarters. However, given the current weak private demand and low consumer confidence, an organic recovery appears unlikely.
As Beijing struggles to revive household demand and stabilize the housing market, it has only implemented incremental measures so far. Weak consumption, low confidence, and a crisis in the property sector continue to weigh heavily on China’s growth prospects. The economic slowdown is becoming increasingly entrenched, and it remains uncertain whether additional stimulus measures will be enough to reverse the downward trend—or if those measures will even materialize.
Chinese state media continue to portray economic growth as stable and full of opportunity, focusing on sectors that are performing well. However, they avoid acknowledging the broader economic slowdown, which is driven by deep-rooted structural issues for which the CCP currently has no clear solution.
Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.
