Mounting Troubles For President Xi: China's Economy Is Not Bouncing Back Post-Pandemic

China's economy experienced a 6.3 per cent expansion in the second quarter compared to the same period last year.

This growth was primarily driven by recoveries in retail sales and the service sector, and it was partly influenced by the low base effect resulting from the COVID-19 lockdowns in 2020.

However, the announced GDP growth was slightly lower than the average market forecast of 6.9 per cent and exceeded the 4.5 per cent rise seen in the first quarter.

Preliminary data indicated that exports declined by 5.2 per cent and imports by 6.9 per cent due to a decrease in trade with major destinations like the United States, European Union, and Southeast Asia.

Notably, exports to the US fell by 16.7 per cent while imports declined by 5.8 per cent. Economists agree that China's post-pandemic recovery has been disrupted by a global economic slowdown and weak domestic demand.

Experts have expressed concerns about China's deteriorating economic recovery, citing challenges such as low consumer confidence and businesses adopting a cautious approach by refraining from increasing production or investment.

A China Business Outlook survey conducted by rating agency Standard & Poor's revealed a decline in confidence among respondents, with hiring and investment plans being scaled back compared to previous months.

China's consumer price index experienced zero growth in June, raising worries about deflation due to restrained household spending and a sluggish job market.

In the first half of the year, the economy grew 5.5 per cent supported by activity in the service sector and retail sector, which saw significant growth compared to the same period last year.

Industrial production increased by 3.8 per cent, and investment in fixed assets grew by 3.8 per cent, although this growth was softer compared to the previous year.

However, the real estate sector experienced a slump, contributing to the slowdown in fixed asset investment. The unemployment rate for youth aged 16 to 24 reached a record high of 21.3 per cent, while the overall unemployment rate stood at 5.3 per cent at the end of June.

China's recovery momentum weakened in June, as indicated by modest growth in fixed-asset investment and a slight increase in retail sales. Housing sales in major cities like Beijing and Shanghai remained flat.

A spokesperson from the National Bureau of Statistics stated that low inflationary pressure would be temporary, and demand is expected to gradually expand.

Economists and market participants anticipate pro-growth measures from the Chinese Communist Party's decision-making body when it meets at the end of the month. However, there are doubts regarding the announcement of aggressive fiscal stimulus packages.

The government is likely to implement cautious supportive fiscal policies, focusing on positive spillovers to productivity and persistent household demand, rather than simply inflating growth figures.

The Chinese government has forecasted a growth rate of around 5 per cent for this year, a modest target following the economy's 3 per cent expansion in 2022, which was one of the weakest performances in decades.