chinese economy grew a measly 0.8% in the second quarter compared to the first three months of the year, the government announced Monday. Quarterly GDP expanded by a healthy 6.3% from 2022, but that’s when the world’s second-biggest economy was still being hit by strict COVID lockdowns that made global supply chains nervous and brought economic activity to a halt.
after finally removed its zero COVID policy At the end of last year, Xi Jinping was confident that the Chinese economy would recover quickly. But following a short rally Right after the restrictions were lifted, China’s GDP growth has lagged behind.
There are three main reasons for this lackluster economic performance. First, China’s gigantic real estate sector, which by some estimates accounts for a whopping quarter of GDP, remains in recession. He Collapse of real estate giant Evergrande in late 2021 it scared off both developers and buyers, so now the former can’t get loans to finance projects, and the latter are wary of buying new homes that might not be built at all.
Also, with around 70% of China’s household savings tied up in real estate, a weak real estate sector means ordinary families can’t accumulate the wealth they need to spend money to buy things, which really fuels a modern economy.
Second, Xi’s unpredictable economic policies have scared off many foreign investors, who no longer see China as a safe place to put their money.
China has also become a veryrisky business for corporate America, increasingly in the crosshairs of Beijing’s new anti-spy law amid the broader US-China economic rivalry. Expect things to get even worse when Washington begins to impose restrictions on US investment to prevent US corporations from (unknowingly) funding Chinese military programs.
Third, and perhaps most important, the government has failed in all its attempts to revive the economy by encouraging people to spend more.
On the one hand, the ruling Communist Party has stuck to its usual playbook of supporting manufacturers and investing in infrastructure, refusing direct support for consumers. Despite lower interest rates, most Chinese families seem to be cutting back and waiting out the uncertainty, which is starting to cause deflation.
The sizzling economy is starting to become more than a headache for Xi, that it might take some creative bookkeeping for China to reach its rather a 5% GDP growth target by 2023. Still, don’t expect the Chinese leader go big on spur — Xi does not want to borrow more and probably thinks he can weather the economic storm by the end of the year.