Photo/Illutration Commuters at a Beijing intersection on June 13 (AP Photo)

China’s economy seems to be faltering despite a strong 6.3 percent year-on-year showing in gross domestic product during the April-June quarter. This was simply a rebound from the slump in the year-earlier period triggered by the “lockdown” of Shanghai following a fresh COVID-19 outbreak.

The Chinese economy grew a puny 0.8 percent during the quarter from the preceding three months, a figure that more accurately reflects the current state of the economy. Both consumer spending and business investment were tepid while exports fell sharply in May and June. Also troubling is that the unemployment rate among young people topped 20 percent.

The Chinese government has been bafflingly slow in responding to these weak economic numbers. However, Chinese Premier Li Qiang, speaking the World Economic Forum’s 14th Annual Meeting of the New Champions, better known as the Summer Davos conference, which was held in Tianjin in late June, stressed the country’s economy remains on a solid footing. The only notable policy response came June 20 when the central bank announced a modest cut in its main benchmark lending rates.

There are expectations of more powerful policy actions to be announced shortly, but they will come too late. China can no longer revitalize its lethargic economy with makeshift measures.

The weak real estate industry, which is said to account for 30 percent of GDP, remains the principal factor hindering the country’s economic recovery in the aftermath of the pandemic-induced downturn. The decline in property prices was triggered by restrictions the government imposed on lending for real estate investment. But structural factors come into as well. The nation’s population is aging and birthrates remain low. At the same time, the number of people in their early 30ss, the dominant group of homebuyers, has started shrinking.

If falling real estate prices force both companies and households to focus on paying back their debts, the economy will inevitably stagnate. Some experts even point to parallels between China’s current economic situation and Japan’s economic woes following the collapse of its asset-inflated economy in the early 1990s.

One factor unique to China is that the conditions in the property market directly affect public finances. That is because many local governments depend on sales of land-use rights as a key revenue source.

To sidestep fiscal restrictions, local governments set up financing vehicles to borrow from financial institutions to fund infrastructure and public welfare projects. The decline in land-related revenue meant local governments found themselves even more dependent on these financing vehicles.

As a result, their hidden debts ballooned to an amount equivalent to 48 percent of GDP as of last year, according to an estimate by the International Monetary Fund. This is roughly equal to the total debt owed by the central and local governments.

Further muddying China’s economic outlook is the government’s tight control on economic information.

Recently, Beijing stopped releasing certain types of economic statistics. The Consumer Confidence Index, a measure of consumer sentiment, for instance, was last released in April. Details of foreign direct investment are published only sporadically. Last October, the scheduled release of GDP data for the July-September quarter was suddenly postponed. There have been cases in which private-sector industry analysis reports were canceled.

At the Summer Davos conference, Li touted China’s commitment to globalization, saying, “China has developed itself by embracing globalization, and grown into a most staunch force for globalization.”

To attach credibility to this claim, Beijing needs to stop treating economic data as a state secret, which only earns it the distrust of the world.

--The Asahi Shimbun, July 18

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