Chinese leadership admits economy is going through "difficulties and challenges"

China’s government leadership said on Monday that its economy faces “new difficulties and challenges” during a meeting of the 24-person Political Bureau of the Communist Party.

The country’s highest-ranking officials meet annually at the end of July to review the economic situation before their traditional summer vacation in August.

This year’s meeting came at a time when the post-COVID-19 recovery in the world’s second-largest economy is running out of steam, due in large part to weak consumer spending.

“The meeting pointed out that the current economic operation faces new difficulties and challenges, mainly due to insufficient domestic demand, operational difficulties for some enterprises, high risks and hidden dangers in key areas, and a complex and severe external environment,” said a readout from the meeting on state broadcaster CCTV.

The Political Bureau agreed on Monday that China should “implement precise and effective macroeconomic regulation, strengthen counter-cyclical regulation and political reserves,” according to CCTV.

The meeting, led by President Xi Jinping, also called for efforts to expand domestic consumption and “adjust and optimize real estate policies in a timely manner,” the broadcaster added.

lousy data

A series of disappointing economic data in recent months has raised calls for officials to take support measures.

China said this month that its economy grew 6.3 percent in the second quarter, far less than the 7.1 percent forecast in an AFP poll of analysts.

The disappointing result came despite a very low base of comparison to last year, when the country was hit by a series of COVID lockdowns in major cities.

In quarterly terms, considered a more realistic basis for comparison, growth was 0.8%, well below the 2.2% seen in January-March, the first full period after zero-COVID restrictions were lifted.

Youth unemployment jumped to a record 21.3% in June, up from 20.8% in May.

And the real estate sector remains in crisis, with major developers failing to complete housing projects, sparking protests and mortgage boycotts by homebuyers.

While the People’s Bank of China cut interest rates last month and the authorities pledged to help the troubled real estate sector, Beijing has taken very little concrete action.

“The key to watch at the meeting is not specific policy measures, but the policy tone set by top leaders,” Macquarie economist Larry Hu wrote in a note.

According to Zhiwei Zhang, chief economist at Pinpoint Asset Management, “The government mentioned ‘strengthening countercyclical policies,’ but the tone related to fiscal and monetary policies does not seem significantly different from before.”

Zhang said the call to support the real estate sector seemed to show that the government has “recognized the importance of policy change in this sector to stabilize the economy.”

“We don’t expect politicians to unleash a strong stimulus package,” Hu said. “Most likely, they will continue to implement stimulus measures in a gradual manner.”

Measures to promote purchases

China on Friday unveiled several measures to incentivize car purchases, while other measures to promote artificial intelligence and consumer electronics have also been announced.

Beijing is aiming for growth of around 5 percent this year, one of the lowest targets set by the Asian giant in decades, and one that Premier Li Qiang warned would not be easy to achieve.

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