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Opinion | China economy: Beijing must follow words with action to restore growth and confidence
- The raft of second-quarter economic data should lay to rest lingering doubts about China’s post-pandemic recovery having run its course
- Beijing’s macroeconomic policies are out of sync with reality, and policymakers must take action to avoid missing an already-conservative growth target
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Recent data for the second quarter provides comprehensive evidence that China’s post-pandemic economic recovery has run its course. Nearly all data points missed market expectations despite year-on-year growth accelerating from the low base induced by nationwide lockdowns.
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If there were any remaining doubts, the numbers have put a nail in the coffin on the debate over the state of China’s economy and whether Beijing needs to take action to halt the slide.
A few aspects stood out as particularly worrying. First is the speed at which the economy is slowing. This would seem odd to those who focus only on year-on-year GDP growth, which accelerated to 6.3 per cent from 4.5 per cent in the first quarter.
However, removing the flattering base effects, sequential growth shrank by more than half to only 0.8 per cent on a quarterly basis. This is clearly more consistent with high-frequency data pointing to faltering growth momentum in the past few months.
Another way to demonstrate this is by looking at the two-year-average-compound growth rates, which present annual GDP growth without base effect distortions. On that measure, growth slowed to 3.3 per cent in the second quarter, from 4.6 per cent in the first.
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China’s youth unemployment rate hits new high as recovery falters
China’s youth unemployment rate hits new high as recovery falters
This shows not only that the economy is operating below its potential, but – perhaps more importantly – it is also below Beijing’s full-year growth target. To achieve the government’s goal of “around 5 per cent”, growth needs to accelerate to above 4 per cent on a two-year-average basis in the second half of the year, which is no easy feat without significant help from Beijing.
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