China’s economy is in deep trouble. Double-digit retail sales growth last month and a surge in industrial output failed to paper over the gaping cracks.
Runaway unemployment in April only added to the gloom and the challenges facing Beijing to shore up collapsing confidence in the world’s second-largest economy.
“As disappointment kicks in, we see a rising risk of [a] downward spiral, resulting in weaker activity data, rising unemployment, persistent disinflation, falling market interest rates, and a weaker currency,” economists at Japanese banking group Nomura said.
“Year-over-year growth in [the second quarter] may still look elevated, thanks to a low base, but sequential growth could experience a material decline,” they added in a note.
By the numbers:
- China’s National Bureau of Statistics reported today that industrial output increased by 5.6% in April from a year earlier.
- Retail sales jumped by 18.4% during the same period but the figures were misleading.
- In 2022, major cities such as Shanghai faced rolling lockdowns as part of President Xi Jinping’s “zero-Covid” policy.
- The strategy was dumped at the end of last year in a move to save the economy.
- The fallout lingers with unemployment among those aged between 16 to 24 hitting a record high of 20.4% in April.
Delve deeper: Crippling local government debt, the aftershocks of a property meltdown and Xi’s “national security” clampdown on foreign research consultancies have spooked investors.
Between the lines: “As the Chinese police keep raiding in the name of national security foreign consulting firms that seem to be doing nothing more than examining the state of China’s economy, one is left wondering what Beijing is trying to cover up,” Kenneth Roth, the former executive director of Human Rights Watch, tweeted last week.
Big picture: Derek Scissors, of the American Enterprise Institute and the chief economist at China Beige Book, went even further. He described a rocky road ahead for Chinese policymakers in an essay for AEI.
What he said: “After the post-Covid surge fades in 2024, China will return to the slowdown path it walked in the 2010s. By the 2030s, it will be old before it can reasonably be considered rich. In the 2040s, it will keep getting older and stop getting at all richer,” Scissors tweeted.
China Factor comment: To say the economy has stalled would be an understatement. Self-inflicted wounds by the ruling Communist Party Xicophants and the obsession with controlling everything under a catch-all National Security Law have left it on life-support.