Chinese Premier Li Qiang has his work cut out as the economy stutters
- Key data for May proves disappointing and many challenges remain, but China still has some tools in the shed to turn things around
If ever a key economic statistic should have given a flattering picture of China’s economic growth, it was last month’s trade figures when compared with the same month last year. In May last year Shanghai, the country’s economic centre and global trade hub, was in the second month of Covid lockdown.
Normal commercial life was paused. It has been restored for more than 11 months.
The value of exports in May this year compared with the previous May was therefore expected to reflect that. Instead it fell, painting a dire picture of stalled economic recovery.
May exports, measured in US dollars, fell by 7.5 per cent, thanks to lower overseas demand, and imports by 4.5 per cent year on year. Over the 12 months the dollar strengthened by 6.7 per cent against the yuan.
Measured in yuan, exports fell by 0.8 per cent and imports rose by 2.3 per cent. Regardless, the figures convey a worrying message of tentative recovery at best.
That underscores the need for the government to put growth and job creation and security front and centre of policy planning. There is little consensus in the market about what to expect from the economy in the immediate future.
Conflicting manufacturing purchasing managers’ indices just compiled by the government and the private sector indicated contraction and growth, respectively. In mid-May, JPMorgan and Barclays cut their 2023 growth forecasts for China’s economy while UBS, Morgan Stanley and Standard Chartered kept theirs unchanged.
The top leadership knew the bad news was coming, and were aware of associated problems such as unemployment – including record levels of jobless young people, lack of confidence among foreign investors and unprecedented levels of local government debt. As a result, the authorities have launched a fresh campaign to crack down on unfair competition and monopolies and improve access for foreign investors.
The moves are seen as aimed at building a unified domestic market, a key tool for Premier Li Qiang to drive policy and restore investor confidence.
The latest trade figures define the challenge facing the new premier and leadership. China’s economy is at a critical juncture for growth, with restructuring in different industries and sectors.
There are lay-offs, although new jobs are created. Job security has become an issue across age groups and socio-economic classes. It is a problem facing many countries.
But young people without jobs is not a good sign in a country with such a huge population.
Pressure is mounting on the People’s Bank of China to cut interest rates. But it probably still has a few other tools in its monetary policy kit, like cutting the banks’ reserve ratio requirement to unleash cash into the economy, as it did at the end of March.
