About three weeks ago, at a conference chaired by Chinese leader Xi Jinping, officials Admitted China’s economy faces “new difficulties and challenges,” he said.
Officials pledged to revive the struggling economy, which began to recover at the beginning of the year as coronavirus restrictions were lifted, according to a summary of a Politburo meeting by the state-run Xinhua News Agency. They said the economic problems were caused, among other things, by weak domestic demand and a “tough and complex” global economy.
Chinese stocks soared at the time, despite the authorities’ vague plans to introduce “countercyclical” regulations, adjust policies for the troubled property sector, and encourage citizens to buy cars, appliances and household goods. did.
Since then, China has released a flurry of alarming economic indicators. Prices paid by consumers and businesses are falling, raising the threat of deflation. July retail sales and industrial production fell short of economists’ expectations, prompting a sharp drop in property investment.
As a result, the stock market lost momentum.
An index of Chinese stocks traded in Hong Kong has fallen more than 9% this month. The Hang Seng Index, a benchmark for stocks traded in Hong Kong, has fallen as well. Lagging among its members is struggling Chinese real estate firm Country Garden, which has lost about half its value this month.
A stock index called the CSI 300, which tracks the largest companies listed in Shanghai and Shenzhen, fell about 5%.
“The Chinese economy is facing an imminent downward spiral with the worst yet to come,” analysts at investment bank Nomura said in a note on Tuesday. “Beijing should play the role of lender of last resort to help some of the big struggling developers and financial institutions, as well as the spender of last resort to boost aggregate demand.”
Indeed, the country’s central bank, the People’s Bank of China, has cut key interest rates to new lows. But critics say the move isn’t bold enough.Wednesday brought even more dire data: house prices fell Declines in 49 out of 70 major cities in the country.
Barclays analysts said Tuesday that the central bank will soon cut the amount of reserves banks need to hold to stimulate the economy. Barclays cut its forecast for China’s economic growth this year to 4.5% from 4.9%. Analysts said growth would slow further next year, with output growing by 4%.
Analysts at Barclays said the two biggest problems the Chinese government needs to tackle are the housing market and domestic spending, which has been hampered by rising unemployment, especially among young people. China said on Tuesday it would stop publishing data on its youth unemployment rate, which has hit a record high of 21.3%.
“The real estate sector remains a major drag on the economic recovery,” analysts said, adding that the recovery in domestic demand was “stagnated by rising unemployment.”
Claire Who Contributed to the report.