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CHINA’S GROWTH SLOWED ACROSS ALL FRONTS IN JULY, PROMPTING UNEXPECTED RATE CUT
MOVE CAME AFTER A MONTH IN WHICH RETAIL SALES, PROPERTY PRICES AND YOUTH
UNEMPLOYMENT WORSENED
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AVERAGE NEW-HOME PRICES IN CHINA FELL FOR AN 11TH CONSECUTIVE MONTH IN JULY.
Photo: Cfoto/Zuma Press
By
Jason Douglas
Updated Aug. 15, 2022 11:25 am ET
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SINGAPORE—China’s economy stumbled in July as a two-month boost from easing
lockdowns faded, prompting the country’s central bank to unexpectedly cut two
key interest rates in an effort to shore up faltering growth.
A raft of data released Monday showed economic activity slowed across the board
in July, including factory output, investment, consumer spending, youth hiring
and real estate, highlighting the breadth of the economic challenge facing
policy makers in a politically sensitive year for leader Xi Jinping, who is
expected to break with recent precedent and seek a third term in power this
fall.
Economists say Monday’s policy moves would probably do little to spur more
borrowing by households and businesses who are on edge over the threat of fresh
disruptions to daily life from any new Covid-19 outbreaks and gloomy about their
prospects against a worsening backdrop for growth and jobs.
The fresh evidence of China’s slowdown adds to the headwinds facing the global
economy this year, which is already reeling from the fallout from Russia’s
invasion of Ukraine and efforts by central banks in the U.S., Europe and beyond
to tame rocketing inflation by jacking up borrowing costs.
The ripples were quickly felt in commodity markets, reflecting China’s status as
the world’s biggest consumer of raw materials. Brent crude futures fell more
than 5% to $93.19 a barrel, putting the energy benchmark on track for its lowest
closing level since mid-February, before the war in Ukraine sent oil-and-gas
markets higher. Copper prices fell 2.5% to about $7,900 a metric ton, and
soybean futures lost 3.1% to $14.09 a bushel. China consumes about 15% of the
world’s oil, imports more crude than any other country and consumes more than
half of refined copper globally.
U.S. stocks and Chinese government bond yields also fell, while the dollar
gained about 0.7% against the offshore Chinese yuan.
Your browser does not support the audio tag.
What’s News
Why China Remains the World’s Manufacturer
A.M. Edition for Aug. 22. The U.S. and other Western countries have spent years
trying to decouple their trade ties with China. But data shows that since the
start of the pandemic, China’s role as the world’s manufacturer has only grown.
WSJ economics reporter Jason Douglas explains why Chinese manufacturing is
proving to be so enduring. Luke Vargas hosts.Read Transcript
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The world’s second-largest economy is straining under the effects of Beijing’s
zero-tolerance approach to Covid-19 and a deflating property bubble, which have
triggered protests and mortgage-payment strikes in several provinces and cities.
Consumers are reluctant to spend and businesses are wary of investing, a
consequence of the “humongous uncertainty about the future,” said Alicia
García-Herrero, Asia-Pacific chief economist at investment bank Natixis in Hong
Kong.
One stark sign of China’s economic malaise: One in five Chinese youth, or 19.9%,
was unemployed in July, Monday’s figures showed, the highest level since China
started publishing such data in 2018.
On Monday, the People’s Bank of China cut by 0.1 percentage point two key
interest rates and pumped the equivalent of $59.3 billion into the financial
system to rev up lending and wider economic growth. The unexpected move marked a
small step toward more support for China’s economy, and may foreshadow further
cuts to borrowing costs in the months ahead, some economists said.
JOB SEEKERS LINING UP IN SHANGHAI. ONE IN FIVE CHINESE YOUTH WAS UNEMPLOYED IN
JULY.
Photo: Cfoto/Zuma Press
“Domestic demand growth remains fragile, held back by government policies as
well as rising concern about the economy’s prospects, so the PBOC is trying to
do what it can to at least support business and consumer confidence in order to
prop up demand,” said Eswar Prasad, professor of economics at Cornell
University.
Yet top government officials have signaled they are unpersuaded by the need to
unload big bazooka-style stimulus of the kind they unleashed after the 2008-09
financial crisis and other recent spells of economic turbulence. They have cited
risks such as inflation and ballooning debts and contrasted Beijing’s fiscal and
monetary rectitude with what they see as the profligate West.
A planned infrastructure push has yielded limited results so far, which
economists say reflects financing constraints on the local governments tasked
with its delivery as well as a shortage of ready-to-go projects.
Chinese Premier Li Keqiang told business leaders at an event hosted by the World
Economic Forum in late July that the government won’t roll out massive stimulus
measures or flood the financial system with too much new money, and would
instead aim for stable prices and “a relatively good” economic performance,
state media reported.
Senior Chinese Communist Party officials announced no new fiscal stimulus
measures at a meeting late last month and pledged to stick with their
zero-tolerance approach to managing Covid outbreaks. Officials have effectively
dropped a growth target of around 5.5% for the year, and the question now for
many economists is just how feeble growth is likely to get.
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Economists at Standard Chartered cut their 2022 growth forecast for the Chinese
economy on Monday, to 3.3% from 4.1% previously. “We expect the path to China’s
economic recovery to be a slog,” economists Wei Li, Shuang Ding and Hunter Chan
said in a note to clients.
Data released by China’s National Bureau of Statistics Monday showed industrial
production rose 3.8% from a year earlier in July, easing from a 3.9%
year-over-year increase in June and well short of the 4.5% growth expected by
economists polled by The Wall Street Journal.
Factory output and exports have been a bright spot for Chinese growth for the
past two years, especially after production resumed and supply-chain kinks were
worked out following the lifting of lockdowns imposed in the spring to contain
Covid-19. But economists have long expected demand for Chinese goods to begin to
fade as consumers in the West feel the pinch from rising prices and interest
rates.
Retail sales, a key gauge of consumer spending, grew 2.7% from a year earlier in
July, a weaker reading than the 3.1% recorded in June and the 5.0% increase
expected by surveyed economists.
GROWTH IN RETAIL SALES IN JULY WAS LITTLE MORE THAN HALF OF WHAT ECONOMISTS
EXPECTED.
Photo: Qilai Shen/Bloomberg News
Consumer confidence has been rocked by the threat of repeated lockdowns and
China’s property bust. Separate data released Monday showed new home prices
posted their steepest year-over-year decline in more than six years in July,
highlighting the strain in the real-estate market after a yearlong regulatory
squeeze that has hit sales and led to stalled projects and developer defaults.
Average new-home prices in 70 major cities fell 1.67% in July from a year
earlier, compared with June’s 1.29% decrease, according to Wall Street Journal
calculations based on data released Monday by China’s statistics bureau.
Your browser does not support the audio tag.
What’s News
China’s Economic Growth Slows, Prompting Surprise Rate Cut
P.M. Edition for Aug. 15. China's economy is struggling to climb out of the
pandemic. After a temporary boost upon emerging from strict lockdowns, new data
shows activity is slowing across the Chinese economy. WSJ reporter Jason Douglas
joins host Annmarie Fertoli to discuss the impact on China and the global
economy.Read Transcript
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On a month-on-month basis, average new-home prices fell for an 11th consecutive
month. Prices dropped 0.11% in July from June, widening from the previous
month’s 0.10% decline, the statistics bureau said. Only 30 of the 70 cities
recorded a month-over-month increase in home prices in July, down from 31 cities
in June.
Data suggest the benefits of the planned infrastructure push have been limited.
Fixed-asset investment slowed in July, rising 5.7% on year in the January-July
period, compared with the 6.1% pace recorded in the first half of the year.
Economists had expected growth of 6.2%.
The unemployment rate for those age 16 to 24 rose to 19.9% in July, from 19.3%
in June, setting a record. The overall jobless rate edged down, however, to 5.4%
from 5.5%.
—Grace Zhu and Bingyan Wang in Beijing contributed to this article.
Corrections & Amplifications
Monday’s figures showed one in five Chinese youth, or 19.9%, was unemployed in
July. An earlier version of this article incorrectly said the figures were from
Wednesday. (Corrected on Aug. 15)
Write to Jason Douglas at jason.douglas@wsj.com
Copyright ©2022 Dow Jones & Company, Inc. All Rights Reserved.
87990cbe856818d5eddac44c7b1cdeb8
Appeared in the August 16, 2022, print edition as 'Beijing Cuts Rates As Growth
Pace Slows.'
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