China Economy Sputters Toward More Stimulus
China is increasingly playing chicken with the economy. Investors better hope they don’t get run over.
Government data released Wednesday confirmed growth is taking another leg down. Industrial production in the first two months of the year grew 6.8% from a year earlier, the slowest pace since the dark days of December 2008. Retail sales in January and February grew 10.7%, the slowest in a decade.
Most worrying is that the property market is only getting worse. People were decidedly not buying property during the Lunar New Year, despite government moves across the country to loosen borrowing and cut out restrictions on apartment purchases that were put in place when the market was overheated.
Property transaction volumes fell nearly 17% in January and February compared with last year, snuffing out hopes that a recovery was building late last year. Unsold apartment inventory hit another record, 422 million square meters.
With buyers on the sidelines, developers aren’t building new stock, providing a major drag on the economy, and now it seems on jobs. While official numbers haven’t been released, China’s human resources minister said Tuesday the slowdown has made “job creation more difficult,” a stark reversal from earlier assessments that employment was holding up despite pain in certain sectors.Fiscal tightening on the local government level represents another brake on growth.
China’s slowdown has been well telegraphed by officials—and in fact seen as a prerequisite to enact reforms and shift the country away from a debt-fueled growth model. The risk has always been that what starts as an engineered slowdown from Beijing could spin out of control as consumers and business lose confidence, and asset prices fall. That the moves to spur the property market aren’t working is a troubling development.
So far China has been relatively guarded with counteracting the slowdown. Two interest rate cuts and a move to cut bank reserve requirements are an acknowledgment of the slowdown, but aren't enough to boost growth. They are more like cushions to break the fall.
As the government’s read on the property market and jobs continues to worsen, more moves seem inevitable, including further loosening of mortgage restrictions, rate cuts and bank reserve requirement cuts. Unleashing a major stimulus package would represent a setback to remaking the economy. But the possibility of a more concerted effort now looms larger than before.