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China's Q2 economic growth cools to 3.5-year low as imbalances worsen
🇸🇬 Singapore /Economy & Trade

China's Q2 economic growth cools to 3.5-year low as imbalances worsen

From CNA · () English

Summarized and contextualized by DistantNews.

At a glance

News Named sources Context piece
  • China's economy grew 4.3% in the second quarter, its slowest pace in over three years, missing forecasts and falling below the government's target.
  • Weak household consumption, evidenced by a 1% rise in retail sales in June, contrasts with strong manufacturing and exports, raising concerns about the economy's unbalanced growth model.
  • Economists debate how to boost domestic demand, with policymakers hesitant to increase fiscal deficits despite slowing investment and a property downturn.

China's economic expansion slowed to 4.3% in the second quarter, marking its weakest performance in over three years. This slowdown, driven by sluggish household consumption, has intensified concerns about the sustainability of the country's growth model, which heavily relies on manufacturing and exports.

Apart from necessary spending on food, I save on anything I can. I haven't bought a single piece of clothing in six months.

— Jane HouAn importer of European goods in eastern China, describing the impact of the economic slowdown on her personal spending.

Official data revealed that retail sales grew by only 1% in June, while industrial output expanded by 5.3%. This imbalance highlights the economy's dependence on global demand for manufactured goods, especially as trading partners voice complaints and the global economy faces headwinds. Jane Hou, who imports European goods, reported her income has halved since the start of the year due to falling sales and a prolonged property crisis, which has left her rental apartment vacant for over six months.

Economists like Zhiwei Zhang of Pinpoint Asset Management suggest that while boosting domestic demand is a consensus goal, there is no clear agreement on how to achieve it. Policymakers appear reluctant to widen fiscal deficits, even as investment weakens and the property sector continues to contract. Wages have stagnated or declined in some sectors, and factors like industrial overcapacity, U.S. tariffs, and AI adoption have contributed to job losses in manufacturing and slowed white-collar job creation.

The government seems reluctant to spend fiscal resources and build up debt.

— Zhiwei ZhangChief economist at Pinpoint Asset Management, commenting on the government's likely approach to economic stimulus.

The property downturn, which began in 2021, has significantly eroded household wealth and impacted employment in construction. Property investment fell 18% year-on-year in the first half of the year, with home prices also declining. Millions have transitioned to the gig economy, facing long hours, low pay, and inadequate social security.

There is a general consensus among policymakers and researchers that China need to boost domestic demand. But there is no consensus how to do it.

— Zhiwei ZhangChief economist at Pinpoint Asset Management, discussing the challenges in stimulating domestic consumption.
DistantNews Editorial

Originally published by CNA. Summarized and contextualized by our editorial team with added local perspective. Read our editorial standards.

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