Key Meeting in Beijing as China Faces Economic Challenges

China’s second-quarter economic growth fell short of expectations, with official statistics showing a 4.7% increase. This represents the slowest expansion rate since early 2023, following the end of strict zero-Covid policies. Analysts had anticipated a growth rate of 5.1%.

The world’s second-largest economy is dealing with a real estate debt crisis, weakening consumption, and an ageing population. Additionally, trade tensions with the US and EU are affecting growth, with both regions limiting Beijing’s access to sensitive technology and imposing tariffs on Chinese goods.

Retail sales, a crucial measure of consumption, rose only 2% in June, down from 3.7% in May. The National Bureau of Statistics acknowledged the challenging external environment and insufficient domestic demand, stating that the foundation for economic recovery needs strengthening.

The announcement coincided with the opening of a key economic meeting led by President Xi Jinping, known as the Third Plenum. Xi delivered a “work report” and discussed plans for “comprehensively deepening reform and advancing Chinese modernisation.” Analysts are hopeful for significant economic support measures from the meeting, although expectations remain tempered.

The People’s Daily, the Communist Party’s official newspaper, emphasized that reforms would not entail major directional changes. Nomura’s chief China economist, Ting Lu, noted that the meeting is intended to focus on long-term ideas and structural reforms rather than short-term policy adjustments.

China has set a growth target of 5% for this year, which, while impressive by Western standards, falls short of the double-digit growth seen in previous decades. The property sector, once a growth engine, is now struggling with debt and liquidity issues. Authorities have taken steps to support developers and boost confidence, but more substantial measures are needed for a full economic rebound.