China’s economic slowdown deepened in July due to a worsening property slump and continued coronavirus lockdowns, with an unexpected cut in interest rates unlikely to turn things around while those twin drags remain.
Retail sales, industrial output and investment all slowed and missed economists’ estimates in July.
The surveyed jobless rate for those aged 16-24 climbed to 19.9pc, a record high and a headache for the Communist Party as it gears up for a major congress in the coming months that is expected to give President Xi Jinping a precedent-defying third term in power.
“July’s economic data is very alarming,” said Raymond Yeung, Greater China economist at Australia and New Zealand Banking Group.
“Authorities need to deliver a full-fledged support from property to Covid policy in order to arrest further economic decline.”
The data suggest a crisis of confidence among Chinese businesses and households, adding another threat to the world economy as global demand for everything from Apple iPhones to luxury goods take a knock.
At the same time, a worsening property slump is being felt at home and abroad as commodity prices such as iron ore and copper plummet.
China’s bonds surged and the offshore yuan weakened as investors absorbed the disappointing data prints and rate cut. A stock rally cooled across Asia, commodities tumbled and the dollar rose as the gloomy news spread across financial markets.
China’s leadership has ruled out large-scale stimulus and vowed to continue with its stringent zero Covid policy, requiring authorities to shut down businesses and lock down the population when major outbreaks occur – as is the case now in the resort island of Hainan. That is dimming the growth outlook for the rest of the year, which economists are downgrading further below 4pc.
China’s central bank cut both one-year and seven-day lending rates by 10 basis points, a move economists said would have little impact since Covid controls have made households and businesses reluctant to borrow. New credit in July increased at the slowest pace since at least 2017.
“The rate cut shows the entire economy is in trouble,” said Iris Pang, of ING. A wave of mortgage boycotts by households over incomplete projects has made households nervous about buying homes, reducing the impact of lower mortgage rates, she added.
The economy’s slowdown, which began in March as authorities in dozens of cities imposed lockdowns to control Covid outbreaks, has spilled over to major economies such as Germany and South Korea as China’s demand for manufactured goods slumps.
Nomura Holdings said that growth in the second half will be significantly hindered by the zero Covid policy, the downward spiral of the property market and a likely slowdown in exports as the global economy weakens.
“Beijing’s policy support could be too little, too late and too inefficient,” the economists led by Lu Ting wrote in a note.