Amidst a turbulent internal and external landscape, the Chinese economy has managed to produce a noteworthy “midterm paper,” demonstrating resilience with a relatively mixed performance in the first half of 2024. On July 15, the National Bureau of Statistics released its 2024 China Economic Semi-annual Report, revealing a 5% year-on-year GDP growth. However, in the second quarter, China’s economy grew by 4.7% year-on-year, following a 5.3% increase in the first quarter, while on a quarter-on-quarter basis, GDP rose by 0.7%. This mixed economic performance underscores the complex landscape China is confronting as it seeks to maintain its growth momentum.The NBS data highlights that China’s value-added industrial output – a key indicator of activity in manufacturing, mining, and utilities – grew by 5.3% in June compared to the previous year, slightly down from a 5.6% rise in May. For the first half of the year, the value-added industrial output saw a 6% year-on-year increase, following a 6.1% rise in the first quarter.
These figures reflect both resilience and the emerging challenges within the Chinese economy. The slight deceleration in growth rates suggests that while industrial sectors remain robust, there are underlying pressures that need addressing. To sustain its economic dynamism, China must continue to innovate and adapt, leveraging its strengths in industrial output while addressing vulnerabilities. Strategic reforms and robust policies will be crucial as China tries to ensue a stable and sustained growth. Notably, the total import and export volume of goods surged by 6.1% year-on-year, with exports rising by 6.9%, surpassing foreign media expectations. Investment in high-tech industries also saw a significant increase of 10.6% year-on-year, fostering new avenues of quality productivity. However, the deceleration in GDP growth during the second quarter denotes the mounting challenges facing the economy.
The International Monetary Fund’s updated World Economic Outlook, released on July 16, projects China’s economy to grow by 5% in 2024, a notable 0.4 percentage point increase from its April forecast. In the first half of the year, China’s high-tech manufacturing sector saw an impressive value-added growth of 8.7%, outpacing all designated industries by 2.7 percentage points. Investments in high-tech manufacturing and services surged by 10.1% and 11.7% year-on-year respectively, significantly higher than the overall fixed asset investment growth rates of 6.2% and 7.8%. However, the retail sales narrative presents a more tempered picture. June’s year-on-year growth slowed to 2%, down from May’s 3.7%. For the first half of the year, retail sales increased by 3.7% compared to the previous year, a decline from the 4.7% growth seen in the first quarter. Fixed-asset investment also displayed a slight deceleration, growing by 3.9% year-on-year in the January-June period, compared to 4% in January-May. Meanwhile, the urban unemployment rate remained steady at 5% in June, as per NBS data, reflecting a labor market holding firm amidst economic fluctuations.
What message does the first half of the year’s mixed economic performance convey? How should China address the escalating challenges in the current economic landscape in the secodn half of the year? The answers lie in balancing robust economic policies with strategic reforms to sustain growth momentum while addressing the vulnerabilities exposed by recent trends. China’s ability to adapt and overcome these obstacles will be crucial in maintaining its economic dynamism and stability. Apparently, China’s economy is facing three major problems: real estate slump and weak consumer demands and private sector investment. China has attempted to counter the real estate downturn by ramping up factory construction, with new manufacturing investments surging by 9.5% in the first half of this year. This rapid expansion has led to an oversupply of goods. In response, companies have sharply cut prices to attract consumers, who remain hesitant to spend – a persistent issue for China’s investment-driven economy. Ironically, China’s record-setting export surge has sparked a global backlash, with higher tariffs being imposed by countries worried about the influx of Chinese goods squeezing local industries. Despite this export boom, the additional revenue has not been sufficient to fully compensate for weak domestic consumer spending. This scenario highlights a critical challenge for China’s economic model: balancing industrial growth and export dependency with the need to stimulate internal consumption. The current strategy highlights the need for China to stimulate domestic consumption and diversify its economic model.
But retail sales have emerged as a major disappointment, exposing the persistent weakness in consumer spending. This trend aligns with recent subdued price data and import figures. Expanding consumer demand is crucial for supporting sustained growth, yet many Chinese families are tightening their belts, reflecting a broader reluctance to spend. Despite a robust start to the year, policy measures have been cautious and largely ineffective, with the property market continuing to burden the economy. Stagnant growth in household credit, coupled with subdued consumer confidence and personal savings rates, suggests that a meaningful recovery is yet to materialize. While exports have surged recently, the rising tariffs on Chinese electric vehicles imposed by the United States and Europe present new challenges for Chinese manufacturers. These tariffs add to the obstacles faced by manufacturers who are being urged to increase investment and production amid weak domestic demand.
At the same time, in the first half of 2024, overall fixed-asset investment increased by 3.9% year-on-year, a slight deceleration from the 4% rise recorded in the January-May period. Private sector investment, in particular, grew marginally by 0.1%, reflecting a significant slowdown. This continued reliance on state-led investment has dominated the growth narrative, as private sector contributions remain subdued. The persistent weakness in private sector investment has been a drag on overall investment levels. Low confidence among private investors, coupled with high real interest rates, has dampened enthusiasm for new ventures. Additionally, investment from foreign enterprises has contracted, adding to the economic concerns. This scenario highlights a critical challenge: while state-led investment has fueled growth, the lackluster performance of private and foreign investments reflects a broader issue. Addressing these weaknesses is crucial for a more balanced and resilient economic recovery. Policy measures aimed at boosting private sector confidence and reducing investment barriers could play a vital role in enhancing overall economic dynamism and stability in the coming months. Addressing these internal imbalances while managing external trade tensions will be crucial for sustaining long-term growth. China must find innovative solutions to bolster consumer confidence and ensure its economic resilience amidst global uncertainties.
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