Author: Keith Bradsher
China’s economy started this year strongly but then slowed sharply through the spring as a collapse in property prices led consumers and businesses to spend more cautiously, official data released on Monday showed.
The world’s second-largest economy’s latest growth figures for April to June piled further pressure on China’s Communist Party leaders as they gathered in Beijing on Monday for a four-day conference to set the future direction of China’s economy.
In China, known for tightly controlling the flow of information, the government has maintained particularly tight control ahead of the Third Plenum of the Party Congress, which usually meets every five years. China’s statistics bureau has canceled its usual press conferences to accompany economic data releases, and Chinese companies have largely avoided releasing earnings reports this week.
China’s National Bureau of Statistics said the economy grew 0.7 percent in the second quarter from the previous quarter, slightly slower than most Western economists had expected. Full-year projections suggest the economy grew at an annualized rate of about 2.8 percent in the spring, less than half the rate in the first three months of the year.
The statistics bureau also cut its growth forecast for the first quarter, and projected full-year growth to be around 6.1 percent, down from the 6.6 percent announced in April.
China’s top leader, Xi Jinping, is trying to build credibility for his policies at home and abroad as economic growth slows and the property market takes a hit.
China has tried to offset a slump in its real estate market by building more factories and boosting exports. But the rapid expansion of manufacturing has created an oversupply of goods, from chemicals to cars, and a lot of unused industrial capacity. Companies have slashed prices to compete with consumers, who remain reluctant to spend, a perennial challenge for the investment-driven economy.
At the same time, China’s record export surge has sparked a global backlash against higher tariffs as countries fear a flood of Chinese goods will overwhelm their domestic industries. But in China, rising export revenues have not been enough to fully offset weak domestic consumer spending, squeezing ordinary citizens and disillusioning foreign investors, sparking an economic slowdown that is a problem for China’s leaders.
The statistics bureau summed up the economic situation in a cautious statement. China’s industrial upgrading is progressing, it said, but added that “the external environment is complex and intertwined, and domestic effective demand is still insufficient, so the foundation for a healthy economic recovery and growth needs to be further strengthened.”
The slowdown in growth was less evident in the Chinese government’s favorite statistic: how much China’s economy expanded in the second quarter of this year compared with the same period last year. This measure showed that the economy grew 4.7% over the past 12 months, down from a 5.3% year-on-year expansion in the previous quarter.
The Chinese government has set its growth target for this year at “around 5%.”
The government is trying to stimulate consumption. Economists in China and abroad have argued the country should significantly boost public pensions, government-provided health insurance and welfare payments. Such measures could be funded by curtailing China’s massive military buildup or by transferring dividends and stocks from state-owned enterprises to the national pension fund. But the government has been reluctant to divert large amounts of money from government agencies and state-owned enterprises.
Few expect anything dramatic from the Communist Party congress as China continues to pursue an investment-led strategy focused on building more, rather than putting money in consumers’ pockets.
The trend was on display on a recent evening in the south-central Chinese city of Nanchang, where the Wanshou Palace district has undergone a major renovation, bringing with it cobblestone sidewalks, free music shows and plenty of shops and restaurants. Thousands of tourists gathered in the streets, taking photos, but few went inside to spend money.
Recent measures by local governments have taken money away from households, further eroding their ability to spend. Faced with declining revenues due to the country’s real estate crisis, local governments have stepped up tax collection and audits, and have begun raising prices for services such as natural gas, water and in some cases rail travel.
Auto sales have been sluggish in recent months, despite automakers slashing prices to attract buyers.
Local governments are facing financial difficulties due in large part to a decline in sales of state-owned land for lease to developers, with builders struggling to complete promised housing units and little cash available to invest in land for future projects.
“Simply put, with around 20 million unfinished pre-sale homes behind schedule in delivery, the housing crisis is not over yet,” Japanese bank Nomura Securities said in a research note on Wednesday.
Until recently, residential construction was one of China’s biggest industries, providing millions of jobs. Apartment sales appear to be finally stabilizing after three years of decline, but they remain very low. Like many countries, China’s commercial real estate sector is starting to run into trouble.
Chinese builders are struggling not only with a slowing pace of construction at home but also with falling orders from abroad. China has imposed limits on lending to developing countries over the past few years as many of those borrowers struggle to repay previous loans.
China-US Engineering Group, a Chinese construction company based in Nanchang, once built 40% of its projects overseas, mostly in Africa, but such projects now make up less than 20% of its business.
“They can’t financially afford to hire us,” said Qin Jian, head of China-USA’s international business division.
This article originally appeared in The New York Times.
