China’s economy: Policy support puts the brakes on economic slowdown
2022-09-19
■ Even with the zero-coronavirus policy continuing and power shortages occurring, policy support puts a brake on the economic slowdown
■ The Chinese government will formulate additional economic measures and implement targeted policy support to support the economy
China's major economic indicators were released today, and the economic indicators for August are almost complete. Industrial production (up 4.2% year-on-year), retail sales (up 5.4% year-on-year), and fixed asset investment (excluding rural areas, up 5.8% year-on-year since the beginning of the year) all increased from July. Under the zero-coronavirus policy, infections with the new coronavirus continued, and severe heat waves and droughts tightened power supply and demand in Sichuan and other provinces, causing factory operations to stop in mid-August. The slowdown in the pace of economic expansion came to a halt. Looking at the breakdown of fixed asset investment, real estate investment (down 7.4% year-on-year since the beginning of the year) has declined for five consecutive months, and investment in the manufacturing industry (up 10.0% year-on-year since the beginning of the year) has continued to slow down. Investment (up 8.3% year-on-year since the beginning of the year) accelerated for the fourth straight month. The economic outlook is becoming increasingly uncertain due to the continuation of the zero-coronavirus policy, the slump in the real estate market, youth unemployment, and capital outflow.
At the executive meeting of the State Council held on August 24, the Chinese government decided to formulate 19 economic policies after May, and reviewed specific measures such as infrastructure investment promotion, real estate market support, and employment measures. Unemployment among 16-24-year-olds remains high (18.7%), property sales are sluggish (down 23.0% year-on-year in GFA terms), and the devaluation of the renminbi reduces the prime lending rate (LPR) and foreign exchange rates. Targeted policy support will focus on items that continue to adjust, such as the decline in reserves (end August: $3,054.9 billion). While strengthening its stance to support the economy, it has avoided mentioning a 2022 growth rate target of "around 5.5%." In fact, the numerical target appears to be withdrawn, making it unlikely that a massive stimulus package will be rolled out to achieve the target.
The economic outlook for businesses and households is more cautious than ever due to structural adjustments in the housing and labor markets, and sluggish external demand due to slowing economies overseas. But investment and consumer demand between businesses and households was delayed, after cities such as Shanghai locked down this spring. If the zero-coronavirus policy is revisited, these latent needs will manifest, and a more vigorous recovery can be expected. The direction of economic policy proposed by the next leadership will be elected at the National Congress of the Communist Party of China in October, which will affect the expectations of the private sector, which is becoming cautious, and the future direction of the economy.