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A woman rides a bicycle in the central business district of Beijing, Aug. 9.
Photo:
mark r cristino/Shutterstock
The world economy is slowing down, and the latest data released Monday on China’s ebbing growth will echo around the world. All the more so because the response from Beijing suggests its leaders are running out of ideas to arrest the decline.
Chinese industrial production—slowing, to growth of 3.8% year-on-year from 3.9% in June. Services—slowing, to growth of 0.6% from 1.3% a month ago. Retail sales—growth slowed to 2.7% from 3.1% in June. Fixed-asset investment, inflation, youth unemployment are all headed in the wrong direction. And they are moving south faster than economists had expected
Beijing is responding with its familiar playbook of monetary stimulus. On Monday the People’s Bank of China, the central bank, reduced two short-term policy rates by 0.1 percentage point, bringing the Medium-term Lending Facility one-year rate to 2.75%.
This surprised markets enough to depreciate the currency to 6.77 yuan per dollar from 6.74 (a higher number signals relative weakness). The main signal is that Beijing won’t keep pace with other large-economy central banks that are raising rates, so don’t be surprised if the yuan weakens further.
This is a consequence of the usual Chinese policy suspects. Unpredictable pandemic lockdowns continue to sweep the country under President
Xi Jinping’s
“dynamic zero-Covid” policy, with the resulting swings in consumer confidence and output. A crackdown on real-estate speculation is catching ordinary households in the crosshairs, and these consumers are seeing their accumulated savings and wealth evaporate as the property market in which they’d invested so heavily sinks. Property is the main source of savings for many Chinese families.
All of this makes China perhaps the only large economy currently experiencing a genuine disruption in economic demand. Most of the West is suffering the inflationary consequences of policy efforts to cure demand-side ills that didn’t exist, while governments hobbled the supply side with lockdowns, regulation and heavy taxation.
Yet the situation quickly is becoming a supply-side problem for China, too. Credit growth has slowed significantly over the past month, especially loans to the private economy. It’s hard to believe this is because the central bank’s policy rates were too high, since even before Monday’s cut they were low for a developing economy. Instead, businesses are growing fearful about the enduring damage from zero-Covid lockdowns, the real-estate implosion, and Mr. Xi’s hostility to successful private enterprise such as tech companies that is showing up in regulatory crackdowns.
Beijing seems to hope that its largest public-works stimulus since 2009 will steady the ship. But China already is starting to pay the price for decades of credit-fueled growth that has left the countryside littered with white-elephant projects and enormous debt.
China needs its entrepreneurial business class to revive the economy’s supply side—and to rescue demand by boosting wages and giving households some investment other than property from which to earn returns on their savings. Leading Chinese economists know this, but doing so would mean easing up on the Communist Party’s political control. That may be more than Mr. Xi can tolerate, in which case more economic trouble lies ahead.
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