China’s economic growth has slowed more than expected, with weak retail spending emerging as a significant drag on the world’s second-largest economy. The latest data intensifies pressure on Beijing to take decisive measures to boost consumer confidence and stabilize the economy.

 

Key Economic Indicators

 

Official figures reveal that China’s economy expanded at an annual rate of 4.7% in the second quarter of 2024, falling short of the 5.1% growth anticipated by financial markets. This slowdown is largely attributed to sluggish retail sales, which grew by just 2% year-on-year in the three months ending in June—the weakest performance since the country emerged from Covid-19 lockdowns. Retail sales growth in June alone saw a slight decline, underscoring the ongoing challenges facing China's consumer-driven recovery.

 

Factors Affecting Consumer Confidence

 

Lynn Song, Chief China Economist at ING Bank, highlighted the depressed state of consumer confidence as a major obstacle to economic recovery. "A negative wealth effect from falling property and stock prices, coupled with low wage growth due to cost-cutting across various industries, is dragging down consumption," Song explained. She noted a shift in consumer behavior towards more basic spending on essentials such as food, beverages, and leisure activities, away from larger, discretionary purchases.

 

Government's Economic Targets and Response

 

The Chinese government has set an ambitious growth target of 5% for 2024, a goal that many analysts believe is challenging to achieve without significant fiscal interventions, such as tax cuts, increased government spending, and measures to support the struggling property market.

 

On a quarterly basis, China’s economy grew by just 0.7% in the second quarter, a sharp decline from the downwardly revised 1.5% growth in the first quarter. In response to weak domestic demand and the ongoing property crisis, the government has ramped up infrastructure investments and increased funding for high-tech manufacturing sectors.

 

Export Growth and Property Market Dynamics

 

While domestic demand remains soft, strong export growth has provided some relief to the economy. Data from June shows that China’s exports rose by 8.6% year-on-year, even as imports contracted by 2.3%. This export performance has helped offset some of the negative impacts of subdued consumer spending.

 

The property market, a critical component of China’s economic landscape, is also showing tentative signs of stabilization. Duncan Wrigley, Chief China+ Economist at Pantheon Macro, pointed out that new home prices decreased by 0.67% month-on-month in June, a slight improvement from the 0.71% drop in May. Pre-owned home prices saw a smaller decline as well, falling by 0.85% compared to a 1.00% drop the previous month. However, residential sales value still fell sharply, down 12.2% year-on-year in June, though this was an improvement from the 26.4% plunge seen in May.

 

China’s slower-than-expected economic growth, driven by weak retail sales and a struggling property market, underscores the need for targeted government intervention to restore consumer confidence and sustain economic momentum. While infrastructure investment and strong exports have provided some support, the path to achieving the government’s growth targets will likely require further policy measures in the coming months. As Beijing navigates these economic challenges, the global markets will be closely watching for signs of stabilization or further slowdown in the world’s second-largest economy.