Traction Proves Elusive: Official business activity readings released Friday showed that China’s manufacturing activity contracted for a third straight month in June. The services sector expansion was slower than expected and it also slowed from the month-ago level.
Industrial profits for the five months ended May fell 18.8% year-over-year, data released by the National Bureau of Statistics Thursday showed. The jobless rate among the youth has hit a record high of 20.8% and other key economic indicators such as exports and retail sales remain lackluster.
Xi To Blame? President Xi does not follow up on his policies after launching them with fanfare, said Zongyuan Zoe Liu and Benn Steil in an op-ed piece in Foreign Affairs. The common prosperity drive the president launched in mid-2020 quickly went out of favor after the government efforts to curb monopoly in the private sector served only to strengthen the unproductive state sector and did not bring the desired effect, they noted.
The government shifted its focus on “consumption-led growth” in Dec. 2022, which became central to the country’s 12-year economic plan, as the country for the first time prioritized consumption over effective investment as a long-term strategy, Liu and Steil said.
Although consumption-led growth is a tried-and-tested strategy, the two co-authors said they were skeptical Xi would persist with it. The president is likely to succumb to pressure from powerful constituencies, including state-owned enterprises, local governments, and the national security bureaucracy, they said.
Consumers, who have in the past seen their leader go back on policy initiatives, will be skeptical and would opt to increase their already high savings rate, the co-authors said.
The two economists noted that China’s consumption spending accounted for only 38% of GDP, about 30 percentage points below the global average. Investment outperforms, accounting for 43% of the GDP, they said.
The government on its part pursues policies to boost the spending going to its preferred businesses and sectors through measures including pushing down exchange rates, making tax rates regressive, keeping social safety nets weak, banning unions other than the party-controlled ones, and capping bank deposits rates etc, Liu and Steil said.
Produced in association with Benzinga
Edited by Bilal Zafar Ranjha and Newsdesk Manager