China Faces Economic Slowdown as Experts Call for Urgent Stimulus to Meet Growth Target

China's economy showed significant signs of slowing in August, with factory output, consumption, and investment all falling short of expectations. Experts warn that without an aggressive stimulus, the government’s 2024 growth target of 5% may be out of reach.

China’s Economic Outlook Dims as Jobless Rate Rises and Growth Slows, Urging Policy Action

China's economy experienced a decline in momentum in August due to a general decline in activity, which suggests that the government's annual development objective is at risk, per Fortune.

According to official figures released on Sept. 14, the jobless rate unexpectedly increased to a six-month high, while measures of factory output, consumption, and investment all slowed more than economists had anticipated.

The widespread weakening significantly dimmed the growth outlook for the world's second-largest economy, prompting demands for a more aggressive policy response with only a few months remaining until the end of the year.

"The August data basically rules out the chance to attain the official target of 5% growth in 2024, unless the top leadership is willing to launch a bazooka stimulus package," said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd.

The most rapid decline in home prices since 2014 indicates weakened confidence affecting demand, which poses a risk of escalating the deflationary spiral in China. A series of rate cuts that have failed to stimulate borrowing suggest anemic consumer and business sentiment.

Authorities are justified in taking more drastic measures to restore growth before it is too late, as the data collectively paints a bleak picture.

"As we are already toward the tail-end of the third quarter, time is running low for policymakers to introduce measures to buoy the economy amid numerous headwinds," Lynn Song, chief economist for Greater China at ING Bank NV, wrote in a note.

China's Economic Struggles Deepen as GDP Growth Lags, Private Investment and Output Decline

Even before Saturday's release, most global banks, including JPMorgan Chase & Co., expected China's GDP to grow below Beijing's target. Economists have called for authorities to do more to avert stagnation akin to Japan's "lost decades."

The discouraging data may emphasize their argument, as it indicates that even the more resilient sector of the Chinese economy is experiencing a decline in momentum.

The slower rate of industrial output expansion than economists had anticipated extended the fourth month of a weakening sequence, the longest since September 2021.

This implies that the primary engine of the Chinese economy this year, which the government and exports have supported, is experiencing a decline in momentum. As trade tensions escalate amid complaints regarding Chinese overcapacity by the United States and other significant partners, additional obstacles may emerge.

"If external demand can stay resilient for a little longer we could see some resilience, but given incoming tariffs and slowing global momentum we are erring on the side of caution," ING's Song said.

Song also cautioned that the auto sector may transition from a tailwind to a headwind, as the volume of car output decreased by 2.3% in August compared to the same period last year.

The private sector's decline was even more severe than the slowdown in state capital-driven investment. Data indicated that private investment experienced its initial decline of the year in January-August, with a 0.2% year-over-year decrease.

In a press conference following the publication, the National Bureau of Statistics recognized the challenging external environment and insufficient demand at home. Liu Aihua, the organization's spokesperson, also attributed the increase in the urban unemployment rate in August to the influx of recent college graduates.

In a rare statement that accompanied the publication of credit data on Sept. 13, the People's Bank of China announced that it would intensify its efforts to combat deflation and develop supplementary policies to stimulate the economy.

President Xi Urges Officials to Stay the Course as China's Growth Slows and Challenges Persist

On the previous day, President Xi Jinping encouraged government officials to "conscientiously implement" existing economic policies throughout the remainder of the year to achieve the full-year economic and social development objectives.

According to Jacqueline Rong, chief China economist at BNP Paribas SA, the output data from the third quarter thus far indicate that the gross domestic product will expand at a rate of 4.6% -4.7 % for the duration. This would suggest that economic growth may encounter difficulty rebounding from the most recent quarter, which was the weakest since March 2023.

She stated that the government would likely implement additional supportive measures in response to the activity downturn; however, she anticipates that no aggressive measures will be implemented until the Central Economic Work Conference in December, when policymakers convene.