About three weeks ago, officials at a meeting chaired by Chinese leader Xi Jinping acknowledged that China’s economy was facing “new difficulties and challenges.”
According to a summary of the Politburo meeting carried by the official Xinhua news agency, officials promised to boost the economy, which had begun to rebound at the beginning of the year after Covid restrictions were lifted but has been struggling. He said the economic troubles were caused by weak domestic demand and a “severe and complex” global economy, among other factors.
Chinese stocks surged at the time, even though officials made only vague plans, such as using “countercyclical” rules, adjusting policies for the troubled real estate sector and encouraging people to buy cars, electronics and household goods. .
Since then, China has released a series of worrying economic data. Consumer prices and business wages are falling, increasing the risk of deflation. Retail sales and industrial production in July fell short of economists’ expectations and real estate investment is falling.
The result was that the stock market lost its luster.
An index of Chinese shares traded in Hong Kong has fallen more than 9 percent this month. The Hang Seng Index, the benchmark for stocks traded in Hong Kong, is down by the same amount. The biggest laggard among its members is Chinese real estate company Country Garden, which has lost nearly half its value this month.
A stock index called the CSI 300, which tracks the biggest companies listed in Shanghai and Shenzhen, fell about 5 percent.
“The Chinese economy faces imminent decline and the worst is yet to come,” analysts at investment bank Nomura wrote in a report Tuesday. “Beijing should play the role of lender of last resort to support some key developers and financial institutions in crisis, and spender of last resort to boost aggregate demand.”
In fact, the country’s central bank, the People’s Bank of China, has cut the key interest rates and brought them to a new minimum level. But critics say these steps are not bold enough. More troubling data came Wednesday: Home prices fell in 49 of the country’s 70 major cities.
The central bank will soon reduce the amount of reserves required by banks to stimulate the economy, Barclays analysts said on Tuesday. Barclays has cut its forecast for economic growth in China this year from 4.9 percent to 4.5 percent. Analysts said there will be even slower growth next year, with output increasing by 4 percent.
Barclays analysts said the two biggest issues Beijing needs to address are the housing market and household spending, which have been hampered by rising unemployment, especially among young people. On Tuesday, China said it would stop releasing data on youth unemployment, which is at a record high of 21.3 percent.
“The real estate sector remains a major drag on the economic recovery,” the analysts wrote, adding that the rebound in domestic demand “has stalled amid rising unemployment.”
Claire Fu contributed reporting.