China economy: economic slowdown, real estate debt problem reignites
2022-08-18
■China's economic indicators were generally weak in July, and the economic slowdown intensified.
■With the re-emergence of the real estate debt problem, there are signs of spillovers to households and other areas, and policy responses are being promoted.
China's major economic indicators were released on the 15th. According to the release, China's economic indicators for July were completed. Growth in industrial production (up 3.8% year-on-year), retail sales (up 2.7% year-on-year), and fixed asset investment (excluding rural areas, up 5.7% year-on-year since the beginning of the year) all slowed. Exports continued to grow significantly (up 18.0% year-on-year) as cargo handling delays at Shanghai Port were resolved and global supply constraints eased. Imports (up 2.3% year-on-year) remained unchanged. As the government continues to implement the "zero coronaviruses" policy, a small number of community infections of the novel coronavirus have restricted economic activity, which has led to a general slowdown in domestic demand expansion. In addition, the urban unemployment rate survey showed that the current unemployment rate fell to the lowest level in 7 months (5.4%, down 0.1 percentage points from the previous month). The unemployment rate among 16-24-year-olds soared (19.9%, up 0.6 percentage points from the previous month). In the tertiary industry, where young people are highly motivated to find employment, the recovery of labor demand will be slow even if the travel restrictions are lifted. There is still a contradiction between labor supply and demand.
Real estate investment (down 6.4% year-on-year since the beginning of the year) and property sales (down 23.1% year-on-year by GFA) accelerated their decline. As housing market conditions continued to deteriorate in July, the rate of decline in new home prices accelerated in 70 major cities, with new home prices (down 0.9% year-on-year, Refinitiv estimates) also below the previous year's level for the third consecutive month. Property developers are struggling financially with sluggish sales. The housing market has been in a slump as more and more homebuyers refuse to pay their mortgages. In addition to lower demand for funds due to the stagnation of economic activity, the turmoil surrounding real estate transactions has also reduced related lending. Total social lending in July (756.1 billion yuan) was below the lowest level since the COVID-19 crisis in February 2020, as stagnant economic activity reduced demand for funds and turmoil in real estate transactions dampened related lending. The Chinese government and financial authorities have moved to provide public support, such as setting up a support fund for property developers, to avoid a credit crunch. Due to the downturn in the real estate market, non-performing loans will continue to increase, and it is expected to take a long time to resolve the problem.
The July 28 Politburo meeting did not mention a growth rate target but suggested that economic stability should be prioritized and low growth tolerated. As the pace of economic recovery has slowed, structural problems such as the labor market and the real estate market have also surfaced. Facing both short- and long-term economic challenges, it has become increasingly important for the Chinese government to steer the economy.