The Chinese economy is slowing down, its industry is stagnating. Many economic experts believe Beijing needs to act quickly with economic stimuli.
China’s economy keeps struggling as industrial and services production plummeted in June, the National Bureau of Statistics (NBS) reported on Sunday. China is the world’s second-largest economy and the largest global manufacturing power. Beijing is also the world’s largest importer and biggest market for several key strategic industries.
The overall Purchasing Managers’ Index (PMI), which merges industrial and services production activity, fell to 49.5 in June. Any reading below 50 is considered a contraction. Reuters-polled economists expected precisely a fall of 49.5.
Non-manufacturing PMI, which includes services and construction, plummeted to 50.5 from 51.1 in May. Specifically, services PMI collapsed to a 5-month low of 50.2 and construction fell to 52.3, the lowest level since July 2023.
“Actual industrial activity should be stronger than the data suggests as our observation is that the official PMI fails to fully capture the current export momentum, which has been the major economic driver this year,” said Xu Tianchen, senior economist at the Economist Intelligence Unit.
Exports have been growing more than expected in the first half of the year. However, internal demand remains extraordinarily weak, with imports constantly failing to meet expectations.
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Calls for stimuli
The Chinese economy seems to head to stagnation unless the central government acts with sweeping economic stimuli to its internal market. Deflation is weakening Chinese consumers, eroding their purchasing power.
China is currently undergoing a nationwide real estate crisis. Though almost three years old, Beijing only actively addressed the crisis recently by approving a $41 billion relief plan. Most economists, however, believe the funds are not even close to enough, as the total value of unsold properties in China exceeds $4 trillion.
“The weak PMI figures naturally call for more supportive policies from the Chinese government. However, the room for monetary policy easing is limited for the time being, as the Chinese currency is under pressure,” said Hao Zhou, chief economist at Guotai Junan International.
Chinese economic ministers predict a 5% GDP growth this year. The International Monetary Fund’s forecast is in line with this level but could be reduced given the current circumstances.
Even exports, currently the only driver of China’s GDP, could see a significant reduction in the following months as the United States ramped up its trade war. The Biden administration raised tariffs on Chinese EVs to 100%.
The European Union could likewise ramp up tariffs, though the two sides are currently negotiating a way out. Brussels is aware of how much China needs European imports and will most likely use it as leverage.
