By XIN Yuan

Growth in consumer spending, industrial output and direct investment slowed in July although infrastructure spending expanded. Real estate investment dropped more than despite buyer-friendly policies. Youth unemployment (19-24 age group) increased to 19.9 percent, the highest since records began, although overall unemployment was slightly down.

During a National Development and Reform Commission press conference on Tuesday, an official acknowledged the “multitude of problems and challenges in the economy,” and stressed stability as the priority for the second half of the year. Stability was not mentioned in a document issued after the council meeting on July 28, merely that the country should “keep going at a reasonable speed,” and “achieve the best outcomes,” said the meeting. 

At the beginning of July, economists projected Q3 growth of around 7 percent. Some even warned of over-stimulation, given that manufacturing, infrastructure spending and car sales were already accelerating. Q3 forecasts have now been trimmed down to 5 percent. Covid outbreaks, a weak real estate sector, and fluctuations in exports, will continue for the rest of the year and GDP growth for the entire year might not reach 4 percent. 

On Monday, just half an hour before the July data was published, the central bank surprised the market with a token interest rate cut, the smallest possible reduction. Until last week, the Bank of China had been cautioning against “inflation pressure.” 

LUO Zhiheng, chief economist at Yuekai Securities, said real estate was an important role in reinvigorating the economy. “A weak real estate sector means lower direct investment. It also affects consumer spending through things such as electronics and home decoration. The government must restore the confidence of both developers and home buyers,” he said. 

Land sales and construction have all but stopped since last year as credit tightens. In July, some home buyers stopped paying mortgages after developers suspended construction of their future homes.