The Communist Party of China held its Third Plenary Session on Monday. Coinciding with the session, the National Bureau of Statistics of China released second-quarter economic data revealing a growth rate of just 4.7%, falling short of market expectations. Analysts believe Chinese leaders may face pressure to boost confidence during the Central Committee’s Third Plenary Session this week.
The latest data shows China’s GDP for the first half of the year reached 61.7 trillion yuan, representing a year-on-year increase of 5%. On a quarterly basis, the first quarter saw a year-on-year growth of 5.3%, while the second quarter grew by 4.7%. Month-on-month, China’s GDP increased by 0.7% in the second quarter.
In June, various data points in China indicated a decline in growth. For example, China’s national industrial added value above designated size grew by 6.0% year-on-year in the first half of the year, but only by 5.3% year-on-year in June. Similar trends were observed in consumption and investment. Total retail sales of consumer goods in China reached 23.5969 trillion yuan in the first half of the year, reflecting a year-on-year increase of 3.7%. However, the year-on-year growth rate in June dropped to 2.0%, marking a month-on-month decrease of 0.12%.
The Wall Street Journal highlighted that China’s second-quarter economic growth rate fell below market expectations, putting pressure on Chinese leaders to bolster confidence at this week’s Third Plenary Session of the Communist Party of China’s 18th Central Committee. The article cited economists who stated that these meetings typically conclude with promises of reform rather than immediate action. Furthermore, policymakers appear to be evaluating the effects of past rounds of policy support, suggesting low expectations for the introduction of large-scale stimulus policies.
China’s GDP was released online without a press conference
This time, the National Bureau of Statistics of China released its data solely online, with a spokesperson responding to reporters’ questions in a question-and-answer format.
China’s GDP grew 5% year-on-year in the first half of the year, but grew only 4.7% in the second quarter. (Screenshot from the official website of the National Bureau of Statistics of China/provided by Huang Chunmei)
“The data this time has a beautifying effect,” Zhang Dinghuan, Associate Professor of Finance and Banking at Jianxing University of Science and Technology, remarked in an interview with this station. “Such data release is not necessarily large-scale external propaganda but the result of large-scale internal propaganda. Other countries face inflation problems, but only China experiences deflation. Due to pessimism regarding the future economy, everyone is hesitant to consume. China is attempting to alleviate concerns regarding the domestic economy through such data releases.”
NHK reported that the original GDP announcement date was postponed during the 20th National Congress of the Communist Party of China in October 2022 and was conducted online. There was speculation that this practice aimed to avoid announcing GDP data that fell below the government’s growth rate target at a press conference.
Zhang Dinghuan pointed out that the current social atmosphere in China reflects a downward trend in the economy, with a high youth unemployment rate. However, the National Bureau of Statistics data only shows a national urban surveyed unemployment rate averaging 5.1% in the first half of the year, representing a 0.1 percentage point decline from the first quarter.
He further noted that the economic forecast index significantly exceeded the actual index. For example, the service industry activity index in June stood at 50.2%, while the expectation index reached as high as 57.6%. Additionally, the manufacturing purchasing managers index (PMI) was 49.5%, falling below the 50 boom-bust threshold, but the enterprise production and operation activity expectation index was 54.4%, indicating a positive outlook among businesses.
Workers polish wheels at a bicycle parts export factory in Hangzhou, Zhejiang Province, July 15, 2024. (AFP)
China’s real estate investment, sales prices continue to fall
Real estate, on the other hand, continues to show no signs of halting its decline. In the first half of the year, China’s real estate development investment fell by 10.1%. National new housing sales area in China decreased by approximately 20% (19.0%) year-on-year, while new commercial housing sales declined by a quarter (25.0%). In June, sales prices of new houses in first-tier cities fell by 3.7% year-on-year, while prices in second- and third-tier cities dropped by 4.5% and 5.4% year-on-year, respectively. The decline in second-hand housing was even more pronounced, with sales prices in first-tier cities falling by 9.0% year-on-year, including a drop exceeding 10% in Guangzhou. Sales prices in second- and third-tier cities also fell by 7.9% and 7.7% year-on-year, respectively.
Ren Songlin, an economist residing in the United States, told this station that if Chinese real estate prices were to follow the American market economy, they would reach a bottom and rebound immediately. In the United States, bankruptcy involves surrendering a house to the bank, placing the risk of bankruptcy on the bank. However, Chinese banks are all state-owned, and personal bankruptcy is not permitted. If a house valued at 10 million yuan is sold at a loss of 8 million yuan, the remaining 2 million yuan loan must still be repaid to the bank. He stated, “House prices decline slowly, causing minimal social shock, so everyone simply endures it. The government has a market guidance price and will not allow you to deviate from it.”
Ren Songlin believes that the ultimate prospect for China’s housing market is the nationalization of housing. Chinese homebuyers only have 70 years of land use rights. The earliest houses constructed in China date back to the late 1990s, meaning over one-third of that time has passed. Hong Kong initially stated that its 50-year lease would remain unchanged, but this has now been altered. If forced to do so, the Chinese government might confiscate the 70-year lease prematurely. “Currently, there are signs of this, as the state is now purchasing inventory houses as low-rent housing. If real estate is nationalized, people will be exempted from loans. At that time, although the houses will be nationalized, they will still reside in them and pay rent, leading to minimal disruption for the people.”
A residential area under construction in Hangzhou, Zhejiang Province. Photo taken on July 15, 2024. (AFP)
Real estate prices have not stopped falling and China’s economy in the second half of the year is unlikely to be optimistic
In response to the slowed GDP growth in the second quarter, a spokesperson for the National Bureau of Statistics of China stated that the external environment will remain unstable and uncertain in the second half of the year, and China will continue to face numerous domestic difficulties and challenges. However, they described these as “problems in progress and troubles in growth.” Ultimately, these issues must be addressed continuously as development progresses. Relevant departments have a clear understanding of these problems and have taken a series of measures to resolve them.
Zhang Dinghuan analyzed, “It is difficult to be optimistic in the second half of the year.” The success of China’s unsold real estate projects is a key indicator of market performance. If real estate prices continue to fall, consumer expectations will turn pessimistic. Real estate should at least stabilize, if not stop its decline. Otherwise, this will be detrimental to the overall development of China’s economy. “In other words, everyone will become conservative in their consumption and spending, leading to contraction across all industries, creating a vicious cycle of shrinking consumer spending.”
Reporter: Huang Chunmei Editors: Chen Meihua, Li Yaqian Web Editor: Ruizhe
China’s Economic Growth Slows in Second Quarter, Putting Pressure on Leaders to Boost Confidence
The Communist Party of China held its Third Plenary Session on Monday, a meeting that comes at a time when the country’s economic growth has slowed. The second quarter economic data released by the National Bureau of Statistics of China at the same time showed that the growth rate was only 4.7%, lower than market expectations. Analysts believe that Chinese leaders may face pressure to boost confidence in the Third Plenary Session of the Central Committee held this week.
China’s Second Quarter GDP Growth Slows to 4.7%, Lower Than Expectations
The latest published data shows that China’s GDP in the first half of the year was 61.7 trillion yuan, a year-on-year increase of 5%. In terms of quarters, the first quarter grew by 5.3% year-on-year, and the second quarter grew by 4.7%. From a month-on-month perspective, China’s GDP grew by 0.7% in the second quarter.
Many data in China in June showed a decline in growth. For example, China’s national industrial added value above designated size increased by 6.0% year-on-year in the first half of the year, but only increased by 5.3% year-on-year in June; the same is true for consumption and investment. In the first half of the year, China’s total retail sales of consumer goods were 23.5969 trillion yuan, a year-on-year increase of 3.7%, while the year-on-year growth rate in June was 2.0%, a month-on-month decrease of 0.12%.
Analysts Say Expectations for Large-Scale Stimulus Policies Are Not High
The Wall Street Journal pointed out that China’s economic growth rate in the second quarter was lower than market expectations, putting Chinese leaders under pressure to boost confidence at the Third Plenary Session of the 18th Central Committee of the Communist Party of China held this week. The article quoted economists as saying that since such meetings usually end with promises of reform rather than immediate action, and policymakers seem to be evaluating the effects of previous rounds of policy support, expectations for the introduction of large-scale stimulus policies are not high.
China’s GDP Data Was Released Online Without a Press Conference
This time, the data from the National Bureau of Statistics of China was only released online, and a spokesperson responded to reporters’ questions online in a so-called question-and-answer format.
“The data this time has a beautifying effect.” Zhang Dinghuan, associate professor of the Department of Finance and Banking at Jianxing University of Science and Technology, said in an interview with this station, “Such data release is not necessarily a large-scale external propaganda, but the result of large-scale internal propaganda. Other countries in the world are facing inflation problems, but only China is experiencing deflation. Because of pessimism regarding the future economy, everyone is afraid to consume. China is trying to ease concerns regarding the domestic economy through such data releases.
NHK reported that the original GDP announcement date was postponed during the 20th National Congress of the Communist Party of China in October 2022 and was only conducted online. At that time, there was a view that this practice was intended to avoid announcing GDP data that was lower than the government’s growth rate target at the press conference.
Zhang Dinghuan pointed out that the current social atmosphere in China is that the economy is in a downward trend and the youth unemployment rate in China remains high. However, from the data of the National Bureau of Statistics, we can only see that in the first half of the year, the national urban surveyed unemployment rate averaged 5.1%, down 0.1 percentage point from the first quarter.
Economic Forecast Index Is Much Higher Than the Actual Index
In addition, he noted that the economic forecast index is much higher than the actual index. For example, the service industry activity index in June was 50.2%, but the expectation index was as high as 57.6%. In addition, the manufacturing purchasing managers index (PMI) was 49.5%, which has fallen below the 50 boom-bust line, but the enterprise production and operation activity expectation index was 54.4%, indicating that enterprises are quite optimistic regarding the future.
China’s Real Estate Investment and Sales Prices Continue to Fall
On the other hand, real estate still shows no signs of stopping its decline. In the first half of the year, China’s real estate development investment fell by 10.1%. China’s national new housing sales area fell by regarding 20% year-on-year (19.0%); new commercial housing sales fell by a quarter (25.0%). In June, the sales price of new houses in first-tier cities fell by 3.7% year-on-year, and those in second- and third-tier cities fell by 4.5% and 5.4% year-on-year respectively; the decline in second-hand housing was even greater, with sales prices in first-tier cities falling by 9.0% year-on-year, of which Guangzhou fell by more than 10%, and second- and third-tier cities falling by 7.9% and 7.7% year-on-year respectively.
Ren Songlin: The Final Prospect of China’s Housing Market Should Be the Nationalization of Housing
Ren Songlin, an economist living in the United States, told this station that if Chinese real estate prices follow the American market economy, they will bottom out and rebound immediately. In the United States, if a person goes bankrupt, he or she can just give the house to the bank, and the risk of bankruptcy is on the bank. However, Chinese banks are all state-owned and do not allow personal bankruptcy. If a house worth 10 million yuan is sold at a loss of 8 million yuan, the remaining 2 million yuan loan still needs to be repaid to the bank. He said: “House prices fall slowly, and the social shock is not that big, so everyone just endures it. The government has a market guidance price and will not let you move.”
Ren Songlin believes that the final prospect of China’s housing market should be the nationalization of housing. Chinese homebuyers only have 70 years of land use rights. The earliest houses built in China were built in the late 1990s, and more than one-third of the time has passed. Hong Kong claimed that it would remain unchanged for 50 years, but now it has changed. If the Chinese government is forced to do so, it will confiscate the 70-year lease in advance. “Today, there are already signs of this, that is, the state is now buying inventory houses as low-rent housing. If real estate is nationalized, the people will be exempted from loans. At that time, although the houses will be nationalized, they will still live in them and pay rent, and the people will not make too much trouble.”
China’s Economy in the Second Half of the Year is Unlikely to Be Optimistic
In response to the slowdown in GDP growth in the second quarter, a spokesperson for the National Bureau of Statistics of China said that looking ahead to the second half of the year, the external environment will be unstable and uncertain, and China will still face many difficulties and challenges at home, but these are “problems in progress and troubles in growth.” Ultimately, they must be continuously resolved in the process of promoting development. The relevant departments have a clear understanding of these problems and have taken a series of measures to resolve them.
Zhang Dinghuan: Difficult to Be Optimistic in the Second Half of the Year
Zhang Dinghuan analyzed that “it is difficult to be optimistic in the second half of the year.” Whether China’s unfinished real estate projects can be successfully destocked is an important indicator of the rise and fall of the market. If real estate prices continue to fall, consumers will have pessimistic expectations. Real estate should at least stabilize, not to mention stopping the decline. Otherwise, it will be detrimental to the overall development of China’s economy. “That is to say, everyone will be conservative in consumption and spending, and all industries will shrink, which will create a vicious cycle of consumer spending shrinking.”
Reporter: Huang Chunmei Editors: Chen Meihua, Li Yaqian Web Editor: Ruizhe
