What new norm of slower Chinese growth could mean for the global

The Chinese economy could be facing a prolonged period of lower growth, a prospect which may have global ramifications after 45 years of rapid expansion and globalization.

The Chinese government is ramping up a host of measures aimed at boosting the economy, with a key Politburo meeting scheduled later this week to review the country’s first-half performance.

Chinese gross domestic product grew by 6.3% year-on-year in the second quarter, Beijing announced Monday, below market expectations for a 7.3% expansion after the world’s second-largest economy emerged from strict Covid-19 lockdown measures.

On a quarterly basis, economic output grew by 0.8%, slower than the 2.2% quarterly increase recorded in the first three months of the year. Meanwhile, youth unemployment hit a record high 21.3% in June. On a slightly more positive note, the pace of industrial production growth accelerated from 3.5% year-on-year in May to 4.4% in June, comfortably surpassing expectations.

The ruling Chinese Communist Party has set a growth target of 5% for 2023, lower than usual and notably modest for a country that has averaged 9% annual GDP growth since opening up its economy in 1978.

Over the past week, authorities announced a series of pledges targeted at specific sectors or designed to reassure private and foreign investors of a more favorable investment environment on the horizon.

However, these were largely broad measures lacking some major details, and the latest readout of the Politburo’s quarterly meeting on economic affairs struck a dovish tone but fell short of major new announcements.

Julian Evans-Pritchard, head of China economics at Capital Economics, said in a note Monday that the country’s leadership is “clearly concerned,” with the readout calling the economic trajectory “tortuous” and highlighting the “numerous challenges facing the economy.”

These include domestic demand, financial difficulties in key sectors such as property, and a bleak external environment. Evans-Pritchard noted that the latest readout mentions “risks” seven times, versus three times in the April readout, and that the leadership’s priority appears to be to expand domestic demand.

“All told, the Politburo meeting struck a dovish tone and made it clear the leadership feels more work needs to be done to get the recovery on track. This suggests that some further policy support will be rolled out over the coming months,” Evans-Pritchard said.

“But the absence of any major announcements or policy specifics does suggest a lack of urgency or that policymakers are struggling to come up with suitable measures to shore up growth. Either way, it’s not particularly reassuring for the near-term outlook.”

Triple shock

The Chinese economy is still suffering from the “triple shock” of Covid-19 and prolonged lockdown measures, its ailing property sector and a swathe of regulatory…