Pressure on Beijing to take steps to improve Chinese consumer confidence has intensified after news that weak retail spending dragged down the growth rate of the world’s second biggest economy.
With falling house prices still acting as a drag on activity, official figures showed the Chinese economy expanding at an annual rate of 4.7% in the second quarter – much weaker than the 5.1% expected by the financial markets.
Annual retail sales growth slowed from 3.2% to 2% in the three months ending in June – the weakest in 18 months – and fell slightly in June alone.
Lynn Song, the chief China economist at ING bank, said retail sales growth was the lowest since the country emerged from Covid-19 lockdowns and showed the depressed state of consumer confidence remained a big headwind to the economic recovery.
“A negative wealth effect from falling property and stock prices, as well as low wage growth amid various industries’ cost cutting is dragging consumption and causing a pivot from big-ticket purchases toward a basic ‘eat, drink and play’ theme,” Song said.
The government in Beijing has set a growth target for 2024 of 5% – something analysts consider to be a stretch in the absence of tax cuts, spending increases and measures to help the property market.
On a quarterly basis, the economy expanded by 0.7% in the three months to June, compared with a downwardly revised 1.5% in the first quarter, the National Bureau of Statistics said.
To counter soft domestic demand and its property crisis, China has increased infrastructure investment and ploughed funds into hi-tech manufacturing.
Strong export growth has partly compensated for the reluctance of consumers to spend. Figures released last week showed China’s exports in June were up 8.6% from a year earlier, while imports shrank by 2.3%.
Duncan Wrigley, the chief China+ economist at Pantheon Macro, said: “The property market is showing tentative signs of bottoming out. New home prices sank 0.67% month on month in June, a trivial improvement from the 0.71% drop in May. Preowned home prices dropped 0.85%, after the 1.00% dive in May. Residential sales value fell 12.2% year on year in June, partly thanks to base effects, after crashing 26.4% in May.”
