Why China’s economic recovery is losing steam despite quarterly growth of 6.3%

Not all’s well with the Chinese economy. Amid economic uncertainties, the Chinese are spending less and less impacting consumption. The country posted a GDP growth rate of 6.3 per cent in the April to June quarter, falling short of expectations but what is causing greater worry for Beijing is the acute slowdown in retail sales. Data shows that in June, retail sales in China fell from 12.7 per cent in May to 3.1 per cent amid rising unemployment rate among the youth.

The unemployment rate among those between the age of 16 and 24 years hit a new high of 21.3 percent from 20.8 per cent in May.

“Households are wary of spending. Consumers remain sceptical about the recovery, and expectations relating to employment and income gains have turned negative,” South China Morning Post (SCMP) quoted Harry Murphy Cruise, economist at Moody’s Analytics as saying.

Though China has underlined the need to boost consumption and gradually shift away from investment-led growth, it is yet to see results.

According to the Carnegie Endowment for International Peace, while nearly everyone agrees on the need for a greater role for consumption but there are significant political constraints to rebalancing that have always made it very difficult for countries that have followed an investment-driven development model similar to that of China’s.

“That’s because after decades during which investment grew faster than GDP, and GDP grew faster than consumption, the relationship between the three must be reversed,” it said.

This process to switch may take time, especially with the rise in the geopolitical and geo-economic challenges.

In the first quarter, China’s economy grew by 4.5 per cent compared to the corresponding period of the previous year. For the first six months, the country’s economy registered a growth rate of 5.5 per cent.

“China’s recovery is going from bad to worse. The 6.3 per cent year on year expansion through the June quarter was below expectations and flattered by the lockdown-ravaged reference period last year,” Cruise said, reported SCMP.

Analysts, however, opined that China will be able to touch the projected growth rate of 5 per cent for the full year. But sentiments have been dented as Beijing has not yet carved out a stimulus package despite making promises. Why? The rising debt levels in its banking sector, especially the local governments have limited Beijing’s ability to announce a big bang stimulus package. “Even if China announces a stimulus package in the near future, it may not be a massive one, it may perhaps be more to manage sentiments,” a person who has business dealing in China said.

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