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Global Economy

Concern about China's economy is growing

The Chinese economy got off to a bad start in the second half of the year. The purchasing managers' index for manufacturing unexpectedly fell by 1.3 points to 50.4 points in July. This is the result of the Caixin/Markit survey of predominantly export-oriented private companies published today.

The barometer is only just above the 50 mark, from which it signals growth. Economists polled by Reuters had only expected a slight decline to 51.5 points. The official purchasing managers' index, which mainly covers large state-owned industrial companies, had surprisingly fallen by 1.2 to 49.0 points.

Will the growth target be reached?

Experts are interpreting the latest data as a warning: "The country has already faced a difficult task – to put it mildly – in terms of its growth target for this year. And the fact that manufacturing activity is slowing again does not bode well." , comments Craig Erlam, market expert at broker Oanda. The data is an indication that the economy is struggling to regain full strength.

"The hope that industry will pick up again after the end of drastic lockdown measures that shut down important economic regions in April has been dampened by the data," agrees Commerzbank economist Bernd Weidensteiner. On the one hand, the global economic weakness weighs on the world export champion. On the other hand, the domestic economy is also stuttering. "Because the government only recently reaffirmed its tough Corona course," said Weidensteiner. As a result, there is always a risk of production disruptions due to lockdown measures.

Also worry about the German economy

This could also have consequences for the German economy. After all, China is by far the most important trading partner. In 2021, goods worth 245 billion euros were traded between the two countries. There has long been reason to worry about the German economy, because growth in this country came to a complete standstill in the spring months. In the second quarter, gross domestic product (GDP) remained unchanged compared to the first three months of this year.

Above all, external factors such as disrupted supply chains, rising prices and the war in Ukraine had a clear impact on economic development, explained experts from the Federal Statistical Office.

Crisis in the real estate market

In addition to the consequences of the lockdowns, a real estate crisis is fueling Chinese economic concerns. According to a survey by the China Index Academy, one of the country's largest independent real estate research firms, house sales by area in 17 surveyed cities fell by a third in July from the previous month. As a result, the real estate sector threatens to fail as a growth engine. "The Chinese real estate sector is in the middle of a depression," say the experts at Societé Générale.

In the face of the headwinds, top politicians have already signaled that the government could move away from its growth target of around 5.5 percent for this year. In the second quarter, gross domestic product grew by just 0.4 percent compared to the same period of the previous year. Factoring out the shock from the outbreak of the virus pandemic in early 2020, this was the lowest growth since data collection began in 1992. Economists expect that the Beijing authorities will now try harder to stimulate the economy.

"Everyone worries about stagnation," said Nie Wen, a Shanghai-based economist at Hwabao Trust. "In the second half of the year, it will be more important economically to accelerate the recovery in consumption."

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