Janice R. Andrews
China’s economic growth is being slowed down by the fact that its main growth drivers are showing signs of weakness. The real estate market in the country is still a big problem for the economy. This shows how important it is for the government to step in right away if it wants to reach its growth goals, which are getting harder and harder to reach.
Factory activity keeps going down
An government poll of manufacturers in China showed that factory activity fell for the fourth month in a row in August. The manufacturing sector is having a hard time getting back on track, which is reflected in this continued drop. From July to now, the industrial purchasing managers index (PMI) has gone down from 49.4 to 49.1, according to the National Bureau of Statistics (NBS). When the measure is below 50, it means that the economy is shrinking. Since April 2023, it has been below this level for all but three months.
Even the Caixin factory PMI, which usually shows better news than government numbers, pointed to possible trouble. After falling into negative territory in July, it slowly rose to 50.4 in August, just above the line of contraction. To stay competitive, makers had to lower prices because the cost of materials for making things fell for the first time in five months. These changes show how tough things are getting for China’s manufacturing sector, which is still an important part of the country’s economy.
Problems in the real estate market get worse
China’s economy used to be strong because of its real estate market, but now it’s a big source of weakness. One of the biggest producers in the country, China Vanke Co., reported its first half-year loss in more than 20 years, which showed how bad things are in the sector. As the housing market slump gets worse, this loss is a good example of the problems in the business as a whole.
Fresh information on sales of new homes is not good. The value of new homes sold by the 100 biggest real estate companies fell by 26.8% in August compared to the same month last year, to 251 billion yuan ($35.4 billion). The fact that this drop is bigger than the 19.7% drop seen in July shows that the slump is speeding up.
Because of this, at least 10 city governments have loosened or gotten rid of their new-home price guidelines so that market demand can play a bigger part. More real estate companies are likely to lower their prices to attract buyers because of this, but it also shows how serious the problems are in the sector.
The Need for a Push
As workplace activity slows down and the housing market gets worse, more and more people are calling for the government to do more to help the economy. Economists want Beijing to be more bold in order to fix the economy and reach its 5% growth goal for the year.
In a statement released along with the latest PMI data, Wang Zhe, a senior economist at Caixin Insight Group, emphasized how important it was to act quickly. He said, “The challenges and difficulties in stabilizing growth over the coming months will be substantial.” China needs to step up its economic help more and more quickly.
Beijing has taken a number of steps to try to boost internal demand, but these haven’t been very effective at stopping the economy from slowing down. Rising nationalism and a worsening picture for the world economy make the situation even worse and could hurt China’s export sector even more.
Effects on the region and concerns around the world
The economic problems China is having are not limited to its own country. The slowdown is affecting many countries in Asia. Taiwan and Indonesia are two that are feeling the effects the most. Taiwan’s industrial activity slowed down for the second month in a row in August. Firms’ trust hit its lowest level of the year, which shows that people are worried about the state of the world economy.
The factory PMI in Indonesia fell to its lowest level in three years and stayed in decline territory for the second month in a row. South Korea’s PMI got a little better, but it was still lower than it was in June. This shows that the regional economy as a whole is struggling.
Goldman Sachs Group Inc. economists like Lisheng Wang and Andrew Tilton have stressed that China needs more fiscal easing to help it reach its growth goal. They said that tax and land sales might not bring in as much money as planned for the budget this year, which could limit government spending unless the official deficit target is raised or there are more opportunities to sell government bonds.
What the government did and what the future holds
Even with these problems, the Chinese government has been slow to act so far. A cautious approach to stimulus can be seen in the fact that only half of the planned spending for 2024 has been finished in the first seven months of the year.
But it’s becoming clearer that the government needs to step in with more force. Some economists, like Lu Ting of Nomura Holdings Inc., think that the People’s Bank of China (PBOC) will soon tell commercial banks to lower borrowing rates that are already in place. They think that bigger support measures might be put in place in the fourth quarter, when worries about growth get worse.
The real estate market is one area where possible measures could be used. China is apparently thinking about letting homes refinance up to $5.4 trillion in debts. This would lower the cost of borrowing money and encourage people to spend more. Such a move would probably make it harder for state-run banks to make money, but it might help the real estate market and customer spending.
China’s economy is still not looking good, as its old growth engines are slowing down and new problems are coming up. Concerns include a drop in the housing market and a weakening of the factory sector. The government is under more and more pressure to take stronger stimulus steps to keep the economy stable. All eyes will be on Beijing’s policy choices throughout the year to see how well they help the country get back on track with its growth goals.
