(Beijing) Chinese leaders, including President Xi Jinping, opened a crucial policy meeting on Monday, overshadowed by the publication of disappointing figures suggesting slowing growth and still-sluggish consumption.
Reassuring the markets by announcing reforms is the expectation surrounding the Third Plenum, a key meeting organized behind closed doors from Monday to Thursday by the ruling Chinese Communist Party (CCP).
The task looks set to be tough, as the Asian giant saw its economic growth slow in the second quarter to 4.7% year-on-year, according to figures released by the National Bureau of Statistics (NBS) shortly before the meeting opened.
This pace, which is below analysts’ expectations and that of the first quarter (5.3%), is also the weakest since the beginning of 2023, when China lifted its draconian restrictions against COVID-19, which penalized activity.
“The foundations for healthy economic recovery and growth must be consolidated,” the BNS admitted.
Retail sales, the main reflection of household consumption, were also disappointing at +2% over one year in June, their weakest rate since December 2022, while industrial production also marked time, at +5.3% in June against +5.6% a month earlier.
“Adjustments”
Since the end of the pandemic, the world’s second-largest economy has struggled to revive activity weighed down by a real estate crisis, sluggish consumption and high unemployment, particularly among young people. Clouds are also gathering abroad with the European Union (EU) and the United States, which are increasing trade barriers to protect their markets from Chinese products and competition deemed unfair.
The Third Plenum, a key meeting around President Xi Jinping, is to define the country’s major economic directions for the next five years. This meeting began Monday in Beijing, reported the official Xinhua news agency.
In the past, this meeting has regularly resulted in significant changes in economic policy. “This is a meeting about policy […] and not the resolution of specific economic problems,” however qualifies economist Larry Hu, of the Macquarie bank. Many economic analysts nevertheless expect measures to support activity.
Limited effect
Some are counting on “adjustments” to develop the high-tech sector or on the announcement of “some support measures for the real estate sector”, like analysts Sarah Tan and Harry Murphy Cruise, from Moody’s Analytics. “Reform is not about changing direction”, stressed the People’s Daily, the official newspaper of the CCP, last week.
In 1978, then-leader Deng Xiaoping enacted at a plenary session the reforms that would put China on the path to dazzling economic growth by opening it to the world. Over the year, the government is aiming for “around 5%” growth, an enviable rate in many countries, but which for China remains far from the double-digit rates it has experienced in recent decades.
For several years, the authorities have wanted to base growth on innovation, high technology and domestic consumption, and no longer on large state investments in infrastructure. But the uncertain economic situation is hampering household spending.
“Confession of failure”
Activity remains penalized by over-indebtedness in the real estate sector, a traditional pillar of growth where many developers are financially strapped. Beijing’s support measures for the sector have so far had only a limited effect.
Many analysts are calling for aggressive measures, arguing that the economy has still not rebounded a year and a half after the lifting of strict anti-COVID-19 health restrictions. “Further support measures are needed,” investment bank Goldman Sachs said in a note on Monday.
But Chinese leaders are on a treacherous note, as “major policy changes could be seen as an admission of failure” of current policies, warn Sarah Tan and Harry Murphy Cruise of Moody’s Analytics.