What Caused the Economic Slowdown in the Second Quarter? (AI Translation)
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文｜财新周刊 于海荣
By Caixin Weekly's Yu Hairong
在一季度中国经济增速超出市场预期后，二季度随着有效需求不足等困难挑战加大，叠加极端天气、金融业增加值统计方式变化等短期因素扰动，经济下行压力显现。
After China's economic growth exceeded market expectations in the first quarter, the second quarter saw increasing challenges such as insufficient effective demand. Coupled with short-term factors like extreme weather and changes in the statistical methods for the financial sector's value added, the pressure on economic downturn became apparent.
国家统计局7月15日公布的数据显示，经初步核算，二季度国内生产总值（GDP）同比增长4.7%，增速低于一季度0.6个百分点，亦明显低于财新调查5.1%的预测均值。从环比看，二季度GDP增速回落0.8个百分点至0.7%，已连续八个季度实现正增长，但为2022年三季度以来最低，显示经济增长动能放缓。
Data released by the National Bureau of Statistics on July 15 indicates that the country's Gross Domestic Product (GDP) grew by 4.7% year-on-year in the second quarter, based on preliminary calculations. This growth rate is 0.6 percentage points lower than that of the first quarter and significantly below the average forecast of 5.1% from a Caixin survey. On a quarter-on-quarter basis, GDP growth in the second quarter decelerated by 0.8 percentage points to 0.7%, marking the eighth consecutive quarter of positive growth but the lowest since the third quarter of 2022, indicating a slowdown in economic momentum.
“形有波动，势仍向好。”国家统计局新闻发言人7月15日答记者问时这样概括二季度经济运行。他称，对二季度GDP增速比一季度有所回落，要全面地辩证地看，既要看到短期波动之“形”，更要看到长期发展之“势”。从短期来看，二季度经济增速回落有极端天气、雨涝灾害多发等短期因素的影响，也反映出当前经济运行中的困难挑战有所增多，特别是国内有效需求不足的问题比较突出，国内大循环不够顺畅等。但从基本面看、从中长期看，经济稳定运行、长期向好的基本面没有改变，高质量发展的大势没有改变。
"The economy shows fluctuations, but the momentum remains positive," said a spokesperson for the National Bureau of Statistics on July 15, succinctly summarizing the economic performance for the second quarter during a Q&A session with reporters. He stated that any assessment of the decrease in GDP growth from the first to the second quarter should be comprehensive and dialectical, emphasizing both the short-term "shape" of fluctuations and the long-term "momentum" of development. In the short term, the slower economic growth in the second quarter was influenced by extreme weather and frequent flooding disasters, reflecting an increase in current economic challenges, notably a significant issue of insufficient domestic effective demand and an inefficient domestic circulation. However, regarding the fundamentals and from a mid- to long-term perspective, the basic trend of stable economic operation and long-term positive development remains unchanged, as does the overarching trend of high-quality development.
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- China's GDP growth slowed to 4.7% in Q2, down from 5.3% in Q1, attributing it to factors like insufficient effective demand, extreme weather, and changes in statistical methods.
- The industrial sector showed resilience with a 5.6% growth in value added, while the service sector's support weakened; consumer spending also declined in the second quarter.
- Policymakers are focusing on achieving the annual growth target, with possible measures including increased financing for real estate, infrastructure investments, and boosting exports.
China's economic growth faced increasing challenges in the second quarter of 2024, including insufficient effective demand, extreme weather, and changes in the financial sector's statistical methods [para. 1]. The National Bureau of Statistics reported GDP growth of 4.7% year-on-year for Q2, down from 5.3% in Q1 and below market expectations [para. 2]. The quarter-on-quarter GDP growth also slowed to 0.7%, marking the lowest rate since Q3 2022 [para. 5].
Despite short-term economic fluctuations, the long-term momentum remains positive. This quarter saw weakened support from the service sector, while industrial and manufacturing sectors performed better. Consumer demand weakened, export levels remained high, and the investment support increased [para. 6][para. 7]. Nominal GDP growth also slowed, showing a weaker microeconomic experience [para. 11][para. 12]. For the first half of 2024, GDP grew by 5.0%, meeting targets, but facing potential challenges ahead [para. 15].
Policy discussions emphasized the complexity of current economic conditions. Premier Li Qiang stressed the need for effective macroeconomic policies to ensure sustainable growth [para. 16][para. 17]. Wang Tao of UBS predicts more supportive policies in the second half of the year, although strong macroeconomic stimulus is unlikely [para. 18][para. 19].
The secondary industry primarily supported economic growth in Q2 with a value-added growth rate higher than GDP's rate. In contrast, the tertiary sector saw the lowest growth since post-pandemic reopening [para. 23][para. 24][para. 30]. Adjustments in accounting methods and prohibitions on certain banking practices also influenced the financial sector's performance [para. 31][para. 33].
From January to June, fixed asset investment increased but at a decelerated rate, driven by manufacturing investment and equipment upgrades [para. 82][para. 88]. Infrastructure investment grew, influenced by policies like the issuance of special bonds [para. 91][para. 92][para. 95]. Real estate remains a negative force, dragging down economic performance despite policy support [para. 97][para. 98].
Consumer spending, a significant concern, fell short of expectations, highlighted by weak retail sales growth and changing consumption patterns due to pre-sale events like the "618" shopping festival [para. 123][para. 125][para. 127]. Factors such as declining income growth, weak real estate performance, and high wealth pressures contribute to lower consumer confidence and spending [para. 137][para. 139][para. 142].
Despite a rebound in disposable income, consumption propensity remains below pre-pandemic levels [para. 144]. The real estate sector’s downturn has significantly impacted local government revenues and public services, influencing both infrastructure investment and consumer spending [para. 194][para. 198].
Experts suggest increasing fiscal policy intensity, optimizing real estate policies, and restructuring local government debt to bolster demand [para. 200][para. 204]. Public consumption enhancement and policy optimization could be short-term "breakthrough points" to improve consumption, which remains fragile due to slow improvements in employment and income [para. 214][para. 215].
In summary, China's economic growth is facing multifaceted challenges in Q2, with noticeable sectoral differences and influenced by policy measures, external demand, and internal structural adjustments [para. 1][para. 5][para. 12][para. 131]. The focus remains on stabilizing consumption and ensuring effective policy implementation to sustain long-term economic growth [para. 16][para. 17][para. 215].
- Ping An Securities
平安证券 - Ping An Securities' Chief Economist, Zhong Zhengsheng, analyzed Q2 economic data, noting weakened support from the service sector while industrial and manufacturing support remained strong. He attributed the decline in consumption to slower income growth and a higher post-pandemic recovery base. He also pointed out that substantial equipment renewal policies and stable exports bolstered investments.
- Nomura
野村 - Nomura's Chief China Economist, Lu Ting, noted that the slowdown in financial sector added value growth in Q2 was due to multiple factors. These included an economic slowdown leading to decreased effective credit demand and adjustments in the method of calculating financial sector added value, which now reflects more realistic levels of added value.
- CICC
中金公司 - The article mentions a research report by CICC (China International Capital Corporation), indicating that exports have shown resilience and are expected to continue growing steadily throughout the year. Potential impacts from US tariffs on Chinese products are deemed relatively small for the current year, with more uncertainty surrounding post-election trade policies in 2025.
- UBS
瑞银 - UBS Chief China Economist Wang Tao expects more government policies to support growth in the second half of the year, including increased low-cost financing for real estate inventory, accelerated government bond issuance, and potential reductions in the loan prime rate (LPR) by 10-20 basis points. However, she highlights that the likelihood of strong macroeconomic stimulus remains low due to the government's desire to retain policy space for future economic or external shocks.
- Huatai
华泰 - The article mentions that Huatai Securities fixed income analyst Zhang Jiqiang highlighted that the reduced decline in June's real estate investment and new construction area could primarily be due to a lower base. He cautioned that the sustainability of this real estate recovery remains uncertain.
- Guosen Securities
国盛证券 - Guosen Securities Chief Economist Xiong Yuan suggests that manufacturing investment's sustained high growth is linked to export strength and new equipment upgrade policies. He notes that major fiscal and infrastructure policies have increased investment, with notable gains in manufacturing equipment purchases.
- Hua Chuang Securities
华创证券 - Hua Chuang Securities is highlighted in the article for its analysis of fixed asset investments and infrastructure investments. Chief Macro Analyst Zhang Yu noted substantial growth in water management investments, potentially linked to the launch of projects funded by increased government bonds issued in 2023.
- GF Securities
广发证券 - The article mentions GF Securities, specifically citing its Chief Economist, Guo Lei. He believes that predictions deviated partly due to a sharper-than-expected drop in June's consumption growth rate.
- Guangdong Development Securities
粤开证券 - Guangdong Development Securities, represented by Chief Economist Guo Lei, analyzed that the prediction bias for Q2 GDP growth stems from an unexpected drop in June's consumption growth rate, which fell by 1.7 percentage points to 2.0%, the lowest since February 2023.
- CIB Securities
兴业证券 - The article does not provide information specifically about CIB Securities. For detailed insights into the second quarter economic trends, the article discusses viewpoints from various economists and institutions, but CIB Securities is not mentioned.
- January to June 2024：
- National fixed asset investment increased by 3.9% year-on-year.
- January to June 2024：
- Real estate development investment fell by 10.1% year-on-year.
- First half of 2024：
- GDP grew by 5.0% year-on-year.
- After the first quarter of 2024：
- China's economic growth exceeded market expectations.
- After the first quarter of 2024：
- Economic challenges such as insufficient effective demand became more apparent.
- May 20, 2024：
- Early start of the '618' mid-year shopping festival resulted in changes in consumer spending patterns.
- June 2024：
- China's export growth rate increased to 8.6% year-on-year, marking the highest level since April 2023.
- July 9, 2024：
- Premier Li Qiang held a symposium with experts and entrepreneurs on economic conditions, addressing the complexity of factors affecting economic growth.
- July 15, 2024：
- The National Bureau of Statistics released data indicating China's GDP grew by 4.7% year-on-year in the second quarter of 2024.
- July 15, 2024：
- A spokesperson for the National Bureau of Statistics summarized the economic performance for the second quarter of 2024 during a Q&A session with reporters.
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