Fact: China’s economy in the second quarter
China’s GDP rose by 6.3 percent in the second quarter compared to the same quarter in 2022. This is worse than expected as analysts had expected growth of 7.1 percent.
Housing prices in China fell in June, for the first time this year. Prices for newly produced housing in 70 cities, excluding state-subsidized housing, fell slightly.
Falling house prices are hampering the recovery in China and raising expectations that the government will take more steps to boost housing demand.
China’s exports fell for the second consecutive month in June. Measured in dollars, the decline was 12.4 percent compared to June last year.
At the same time, China’s imports fell by 6.8 percent compared to June last year.
Overall, the development resulted in a surplus in China’s trade with the rest of the world of 70.6 billion dollars.
The decline in China’s trade was greater than expected. Analysts had expected, on average, that exports would decrease by 10 percent, while imports would decrease by 4.1 percent.
China’s exports to the US fell for the eleventh consecutive month. The decline was 24 percent.
Youth unemployment in China’s cities rose to a record 21.3 percent in June, according to new statistics. Thus, unemployment has risen six months in a row since the last dip to 16.7 percent in December.
Source: Bloomberg.
China’s GDP rose less than expected in the second quarter. In combination with weak domestic consumption, an uncertain housing market and rising youth unemployment, several observers ask themselves the question: What state is the world’s second largest economy actually in?
— Growth is slowing down because President Xi Jinping cares more about politics than economics. The private companies, where growth happens and new jobs are created, still have to have party committees where they study his latest line speech, which takes time away from other important activities, says Kristina Sandklef, an independent China analyst who previously worked for East Capital.
Characterized by planned economy
As China is still characterized by a planned economy, the country’s condition is difficult to evaluate, she points out.
— The state regulates a lot. You can sit with your national economic glasses and divide whether they should raise or lower the interest rate, but it is not possible to simply analyze China based on the economic parameters we use in the West.
As the world’s second economic power player, after the United States, it is inevitable that a Chinese slowdown will lead to consequences for the global economy – and thus also Sweden.
— We have lots of Swedish companies with a large turnover in China. It ultimately affects our company profits and, by extension, jobs, tax revenues and future pensions. Likewise, China affects the global economy, which has an impact on a trade-dependent country like Sweden, says Kristina Sandklef.
“Caught in a foxhole”
According to semi-governmental Business Sweden’s annual survey with Swedish companies in China, the business climate is the worst in at least ten years. In particular, the survey highlights problems such as skills shortages, protectionism, technology theft and corruption.
Gunnar Lindstedt, an economic journalist who has followed China for decades, notes that the West has helped make China the “workshop of the world” – a fact that has created a deep and widespread dependency.
— Now we see the back sides. We have found ourselves in a foxhole that displaced so much of semiconductor manufacturing in China.
— But the biggest problems are political. China’s totalitarian development should make it almost impossible to trade with the country, says Gunnar Lindstedt.
Deflation in China?
He emphasizes that China’s GDP consists of three parts: the export industry, the real estate market and domestic consumption.
— All these parts are now collapsing. There are many indications that there may be deflation in China, he says, referring to when the general price level falls as opposed to inflation.
Deflation that persists leads to households and businesses holding off on consuming, investing and hiring, which has a negative impact on the economy and the labor market.
Gunnar Lindstedt also emphasizes that the financial position of the Chinese middle class is deteriorating as a result of the decline in the real estate market.
— 70 percent of the Chinese’s assets are in real estate. When house prices go down, they get poorer. Then the interest in consuming will be lower. And as consumption falls, so do prices.
A collapse of the property market, however, is unlikely, according to Kristina Sandklef.
— The regime would never allow it, because it would lead to social unrest.