China's economy experienced a slowdown in the second quarter, as official data revealed a 4.7% growth from April to June, which fell short of the anticipated figures after a stronger performance in the first quarter of 2024. This growth rate is below the government's annual target of approximately 5%.
Heron Lim of Moody's Analytics remarked, "China’s economy hit the brakes in the June quarter," highlighting the anticipation for solutions from the ongoing key meeting in Beijing, known as the Third Plenum. This significant gathering, presided over by President Xi Jinping, includes over 370 high-ranking Chinese Communist Party members.
China, the world's second-largest economy, is grappling with several challenges, including a prolonged property crisis, substantial local government debt, weak consumer spending, and high unemployment. Historically, outcomes from the Plenum have had profound impacts, such as Deng Xiaoping's 1978 economic reforms and President Xi's 2013 hints at relaxing the one-child policy.
State-controlled media has been optimistic, with The Global Times mentioning "reform-focused policies" that are expected to usher in a "new chapter." Xinhua has talked about "comprehensive" and "unprecedented" reforms, and the People's Daily editorial has heralded a "new era of reform and opening up," echoing Deng's 1978 reforms.
However, observers question the potential for significant changes under President Xi's centralized leadership, with some viewing the Plenum as a formality for pre-decided policies. Economists, including Qian Wang from Vanguard, doubt the meeting will provide immediate economic relief, focusing instead on long-term reforms to boost growth potential.
Analysts are keenly watching for signals of the Party's economic priorities. Recent data showed new home prices in June declined at the fastest rate in nine years, underscoring the property sector crisis, which has affected giants like Evergrande and raised concerns about its wider economic impact. Economist Dan Wang from Shanghai suggests the Party may push for consolidation among smaller, regional banks, which are heavily exposed to the housing market and local government debt.
Additionally, falling prices indicate weak demand, with producer prices continuing to drop and consumer prices rising by only 0.2%, the slowest in three months. Retail sales in June increased by just 2%, below expectations, indicating consumer caution and uncertainty.
Eswar Prasad, former head of the International Monetary Fund's China division, noted a loss of confidence among households, businesses, and investors in the government's ability to manage the economic challenges. There is skepticism about Beijing's willingness to implement solutions that would satisfy observers and markets. Dan Wang pointed out the government's reluctance to resort to short-term stimulus measures like direct cash transfers to families, preferring to focus on strengthening supply chains and high-tech industries.
China is betting on sectors such as renewable energy, artificial intelligence, and chip-making to revive its economy, alongside its record trade surplus of $99 billion (£76.4 billion) reported last month due to soaring exports and struggling imports. However, this strategy faces difficulties, as major trading partners like the European Union and the United States have imposed tariffs and barriers on Chinese goods, including electric vehicles and advanced chips.