Indications of a Significant Deceleration in the Chinese Economy

Late last year, China relented on its zero-COVID policy under pressure from big powers and global corporations, expecting a sharp resurgence in its economy and a boost to global growth. However, the latest Chinese economic data paints a different picture. Both industrial production and consumer spending fell below expectations, with industrial production rising only 5.6% compared to the anticipated 10.6%. Meanwhile, youth unemployment rose to a record-breaking 20.4% for those aged 16 to 24, indicating that despite an increasing number of young graduates, they cannot find jobs.

Unemployment continues to rise despite claims by the Xi Jinping government that it will ensure economic growth and increasing living standards. The National Bureau of Statistics (NBS) has called for efforts to stabilise and expand youth employment, citing both global and domestic developments as contributing factors to the economic slowdown. Inflation figures suggest that consumer prices in China have remained weak, rising only 0.1% in the year to April. Producer prices have fallen for seven consecutive months, raising concerns about rising prices and fueling deflationary fears.

Indeed, seven provinces and major cities, such as Shanghai, Henan, Liaoning, and Shanxi, have reported contracting year-on-year economic growth, leading to concerns about the declining property market, which has been driving China’s economy for more than a decade. Property investment fell 6.2% year-to-date, worse than the expected 5.7% decline. Although property sales have risen 13.2% year-on-year through April, investment in the sector fell 16.2% over the year, and new home construction continued to decline. Trade statistics showed a similar trend, highlighting the impact of the worsening global economic outlook.

As a result, many financial analysts predict a sharp slowdown in China’s economy, with fiscal easing likely to diminish in the second half of the year. While activity is expected to pick up in the second quarter due to lower base figures, it will be lower than in the first quarter of this year because the recovery has lost momentum. China’s departure from the “sweet spot” for reopening the economy has exacerbated the situation, leading to worries about the impact of slowing credit growth, weak housing markets, and global demand on China’s exports.

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