China’s economy faced challenges in the third quarter, highlighting the urgent need for increased fiscal stimulus due to declining domestic demand caused by a prolonged housing downturn.
Recent data revealed a surprising slowdown in fixed-asset investment to 3.6% in the first seven months of the year. While retail sales surpassed expectations, they remained below pre-pandemic levels, and industrial production softened slightly. The offshore yuan faced losses post-data release.
Analysts pointed out a lack of dynamism in China’s $17 trillion economy, with signs of deterioration as consumers and businesses grow more pessimistic. Government efforts, such as interest-rate cuts, have not made a significant impact, and the economy heavily relies on manufacturing to drive growth.
Efforts to achieve 5% growth this year face challenges, with equity markets responding positively to retail sales boosts. Analysts suggest additional infrastructure spending and stimulus to revitalize demand.
Despite weak fiscal support, Beijing has been cautious about implementing large-scale stimulus measures. Concerns persist over a housing slump, with declining home prices and new home starts.
Investment figures for July showed a slowdown, particularly in infrastructure investment and private firms’ investment. Analysts warn that China’s economy may face prolonged confidence decline and price deflation.
To combat economic threats, policymakers are looking to high-tech manufacturing as a growth driver. Challenges such as qualified construction projects and constraints on further easing monetary policy due to yuan stability and bond market concerns persist.
In summary, China’s economy faces ongoing weak demand and growth challenges, prompting the need for targeted fiscal stimulus and structural reforms to drive sustainable growth.
