Doubts have been cast about China’s nascent economic recovery after a series of data points suggested the world’s second-largest economy is struggling on multiple fronts. The industrial production number missed estimates by a wide margin, even as youth unemployment remained a concern. Mint explains why optimism about China’s recovery has waned.
China’s economy showed signs of hope after easing its strict Covid restrictions earlier this year, as the world’s second largest economy posted 4.5% GDP growth during the first three months of 2023. The recovery was an encouraging sign.
However, optimism over China has taken a hit as key data points suggest the country’s recovery is faltering. Industrial production rose 5.6% year-on-year in April, missing forecasts by a wide margin.
Meanwhile, according to data released on Wednesday, manufacturing activity contracted for the second consecutive month in May. Industrial profit levels have also been low.
These troubles have been compounded by larger issues such as a weak property market and high youth unemployment, which crossed 20% in April. It seems that China’s youth are bearing the brunt of the country’s economic downturn. The government crackdown on sectors such as finance, real estate, technology and consumer-facing startups has hurt job seekers.
The real estate sector, which has played a key role in powering the country’s economic growth, remains dazed and in disarray after a rollercoaster year that saw angry citizens refusing to pay their mortgages. This, and a brush with the country’s regulators, have damaged confidence in the sector. According to research firm Gavecal, home sales have fallen 63% from 2019 levels.
These worrying signs come after policy makers set a modest 5% growth target for 2023. The economy is projected to grow by only 3% in 2022. But confidence among consumers and the private sector has taken a hit, which is not good for the economy.
Markets have taken note of the country’s weak economic performance. According to some estimates, shares of Chinese companies have declined by a total of $540 billion since mid-April. The yuan has also faced downward pressure.
This has given rise to widespread expectations that the government will roll out a stimulus package to spur growth and tackle growing discontent. Many analysts of China have observed that citizens have an unspoken social contract with the ruling Chinese Communist Party – economic growth and increased living standards in exchange for not challenging the CCP’s authoritarian rule.
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Updated: May 31, 2023, 01:48 PM IST