China economy: Beijing must follow words with action to restore growth and confidence

The raft of second-quarter economic data should lay to rest lingering doubts about China’s post-pandemic recovery having run its course

Beijing’s macroeconomic policies are out of sync with reality, and policymakers must take action to avoid missing an already-conservative growth target

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Workers hang off the side of the construction site of a block of flats in Beijing on July 29. Turmoil in the housing market is one of several factors raising concerns about the state of China’s economy. Photo: Reuters

Aidan Yao

Aidan Yao is a senior investment strategist for Asia at Amundi, based in Hong Kong.

Published: 3:30am, 3 Aug 2023

Recent data for the second quarter provides comprehensive evidence that China’s post-pandemic economic recovery has run its course. Nearly all data points missed market expectations despite year-on-year growth accelerating from the low base induced by nationwide lockdowns.

If there were any remaining doubts, the numbers have put a nail in the coffin on the debate over the state of China’s economy and whether Beijing needs to take action to halt the slide.

A few aspects stood out as particularly worrying. First is the speed at which the economy is slowing. This would seem odd to those who focus only on year-on-year GDP growth, which accelerated to 6.3 per cent from 4.5 per cent in the first quarter.

However, removing the flattering base effects, sequential growth shrank by more than half to only 0.8 per cent on a quarterly basis. This is clearly more consistent with high-frequency data pointing to faltering growth momentum in the past few months.