China's GDP growth unexpectedly slips below official target range

GDP grew 4.3% from a year ago, according to data released by the National Bureau of Statistics, below the bottom of this year's official target range of 4.5% to 5%

China’s economy slowed more than expected last quarter to the weakest in more than three years, turning the attention to what policymakers will do next to ensure their annual growth goal is met.

 

Gross domestic product grew 4.3 per cent from a year ago, according to data released by the National Bureau of Statistics on Wednesday, below the bottom of this year’s official target range of 4.5 per cent to 5 per cent. That compares with a 4.5 per cent gain projected by economists polled by Bloomberg, following an increase of 5 per cent in the first quarter.

 

“The economy ran within a reasonable range,” the NBS said in a statement. “There were many instabilities and uncertainties externally, and the supply-demand imbalance was prominent domestically.” 

 

The extent of the slowdown will likely dominate the agenda when the ruling Communist Party’s decision-making Politburo meets later this month. Officials may choose to accelerate public spending and step up investment in infrastructure projects after cutbacks to expenditure in recent months put the brakes on growth following a surprise pickup to start the year.

 

Reaction in markets was muted after the data release. The offshore yuan held its morning gain of 0.1 per cent and the yield on 10-year government bonds was steady at 1.73 per cent.

 

The latest data also showed fixed-asset investment was down 5.7 per cent in the first half from a year ago, lower than estimated and worsening from the 4.1 per cent decline recorded in the first five months. 

 

Retail sales unexpectedly grew 1 per cent after a 0.6 per cent drop in May. Industrial production beat forecasts and rose 5.3 per cent. The surveyed urban jobless rate eased to 5 per cent from 5.1 per cent in May. 

 

Declines in sales of goods such as home appliances narrowed during the annual “618” mid-year online shopping festival, according to some onshore economists. 

 

Concerns over the health of the world’s second-largest economy have been intensifying since April as growth weakened and became more unbalanced. Though the energy shock unleashed by the war in Iran is helping drag China out of its yearslong deflation, consumer and business confidence is still sluggish.

 

While exports are soaring to record highs and factory production is holding up well, thanks in large part to the global buildout of artificial intelligence infrastructure, tensions over trade fester abroad, threatening an economy that’s become reliant on sales overseas. The risk is that the gains of the boom remain concentrated in a few sectors such as electronics manufacturing and don’t trickle down to the broader economy.

 

The historic plunge in FAI over the past year has raised alarms in China.

 

David Li Daokui, a prominent economist and government adviser, said in a speech earlier this month that before the recent slump, the gauge only contracted in 1961 and 1967, and the magnitude of the current fall is unprecedented.

 

The investment contraction “is the culprit of the poor GDP in the second quarter,” said Raymond Yeung, chief economist for Greater China at Australia & New Zealand Banking Group Ltd. “China will still need to deliver growth-supportive policy in the second half, best before the end of the third quarter. July’s Politburo is now our closely watched event.”