0.4% Growth and a 7.2% Slump: Why Beijing’s Incremental Fixes Are Failing to Slow China’s Economic Bleed
New bank loans total just 60 billion yuan despite plans to stimulate demand
Consumers walk past an Apple Inc. store in the Wangfujing shopping area in Beijing on Friday, Feb. 10, 2023. The scene offers a visual of consumer activity, but the macro numbers tell a different story about the health of the world's second-largest economy. Data from the National Bureau of Statistics showed retail sales grew 0.4% in August from a year earlier, a figure that missed economists' forecast for a 0.8% growth in a Reuters poll. This slowdown from 0.6% in the prior month suggests that even the reopening and Lunar New Year holiday season are struggling to spark sustained demand. Officials noted an "acute" imbalance domestically between "strong supply and weak demand" while acknowledging that some businesses still face operational difficulties.
While the retail sector chugs along at a glacial pace, industrial output expanded 5.2% last month. This acceleration from 4.5% growth in July outperformed economists expectations for a 4.8% rise. This divergence highlights the structural friction within the economy where factory floors are humming while retail counters remain relatively quiet. The urban survey-based unemployment rate ticked up to 5.3% from 5.2% in July, a statistic that NBS spokesperson Fu Linghui attributes to the graduation season. He highlighted stable employment in manufacturing and growth in the hospitality and catering sectors as bright spots amidst the broader contraction.
The most telling figure for investors involves leverage. Urban fixed-asset investment, which covers property and infrastructure investment, shrank 7.2% from a year earlier for the first eight months of the year. This decline steepened from the 6.7% drop in the January-to-July period, exposing the fragility of the real estate and infrastructure sectors. Analysts caution that the market is waiting for fiscal policy to become more supportive in Q3. Zhiwei Zhang, president at Pinpoint Asset Management, expects the economy to continue facing downside risks as fiscal support takes time to take effect. The disconnect between the strong industrial output and the weak retail sales points to a supply-side resilience that cannot fully compensate for weak domestic consumption.
Beijing has stepped up government bond issuance and expanded loan-interest subsidies for small private businesses and consumers in recent weeks. However, these efforts to fire up appetite for new debt have fallen short. China's credit expansion in August missed forecasts by a wide margin. New bank loans expanded by just 60 billion yuan ($8.95 billion), versus a roughly 400 billion yuan forecast and down from 590 billion yuan a year earlier. Outstanding loan growth slowed to a record-low 4.9%, indicating that borrowing costs and economic uncertainty are dampening enthusiasm for leverage. Analysts, however, expect that Beijing is unlikely to ramp up stimulus meaningfully as long as export growth remains strong enough to power the economy to land within the target range. A global investment boom in artificial intelligence has lifted demand for Chinese semiconductors and tech hardware, providing a unique buffer against global volatility.
The country's massive oil stockpiles have also offered a further buffer against surging energy prices, allowing the world's biggest crude importer to scale back oil purchases. Oxford Economics estimates third-quarter growth at 4.3%, posing downside risks to its 4.7% annual growth target and veering further from Beijing's annual target of 4.5% to 5%. Weak consumption and the property slump remained the biggest drags on growth, even as exports and high-tech manufacturing added some momentum. Weak consumption and the property slump remained the biggest drags on growth. A team of economists led by Raymond Yeung, China economist at ANZ Research, said in a note earlier this month that "September could represent an important policy window to revive business confidence ahead of October's Golden Week holidays." More fiscal support is needed, but a policy rate cut remains unlikely, they added. The official manufacturing purchasing managers' index showed new orders and output both returned to expansion in August after contracting in July, suggesting that while the machine is greased, it is still moving slowly.
First reported by CNBC: Finance.
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