China Faces Economic Challenges as Data Shows Weakness in Recovery
China is experiencing mounting pressure on its policymakers as new data reveals weakness in the country’s economic recovery. The announcement that China will stop publishing data on youth unemployment, just weeks after it reached a record level, adds to the concerns surrounding the second-largest economy in the world.
In a surprise move, the People’s Bank of China (PBOC) also cut a benchmark interest rate, the largest reduction since the start of the COVID-19 pandemic. This further highlights official concerns over the loss of momentum in the economy, even after the lifting of pandemic restrictions.
Beijing is currently grappling with various economic challenges, including a liquidity crisis in the property sector, a significant decline in exports, a decrease in foreign investment, and persistent weakness in consumption.
Youth unemployment, which has been reported since 2018, hit 21.3% in June. However, the figure was not included in the wider data release for July. The overall unemployment rate for July rose to 5.3%, up from 5.2% in June.
The recent data also revealed that retail sales in China only grew by 2.5% year on year in July, while industrial production expanded by 3.7%. Both metrics fell short of expectations and were lower than June’s figures.
Following these announcements, there were notable market reactions. The yield on 10-year Chinese government bonds fell, and the renminbi weakened against the dollar. The benchmark CSI 300 index of Shanghai- and Shenzhen-listed stocks also experienced a decline.
The exclusion of China’s youth joblessness rate adds to the difficulty in analyzing the country’s economic data, which has become more challenging in recent years, according to analysts. The National Bureau of Statistics spokesperson, Fu Linghui, stated that labor statistics needed to be “advanced and optimized.”
The PBOC’s decision to cut its one-year medium-term lending facility rate by 15 basis points to 2.5% further reflects concerns about the state of the macroeconomy. It is the lowest level since the rate was launched in 2014. Additionally, further cuts to borrowing costs are expected in the coming weeks.
“The market was expecting the PBOC to wait until September before easing again, and today’s cuts suggest that the authorities’ concern about the state of the macroeconomy is mounting,” said Robert Carnell, head of Asia-Pacific research at ING.
In addition to these challenges, the property sector is also facing slow growth. Developer defaults have paralyzed the sector for two years, and recent incidents, such as China’s largest private homebuilder missing payments on international bonds, have raised concerns. Property investment has experienced a significant decline, worsening from the first half of the year.
Overall, China’s economy is facing multiple hurdles as it seeks to recover from the impact of the COVID-19 pandemic. With various economic challenges and weakening data, policymakers will need to implement effective measures to stimulate growth and revive the country’s economy.