THE 10 BASIS points cut by the People’s Bank of China to its one-year lending rate for the first time since January to 2.75% was unexpected.
It was a direct response to July’s economic data showing the economy slowing further.
Retail sales growth in July slowed to 2.7% year-on-year, down from 3.1% in June. Industrial output growth was little changed from June at 3.9% year-on-year. Fixed asset investment growth, at 5.7% year-on-year in January-July, was nearly half the pace of last year, and private sector investment grew by just 2.7% year-on-year in the same seven-month period.
The downturn in the beleaguered housing market is accelerating. Property investment fell by 12.3% year-on-year in July, the fastest pace this year. New home sales fell by 28.3% year-on-year.
Most concerning for the leadership is that, while urban unemployment overall was steady in July at 5.4%, unemployment among 16-24-year-olds set another monthly record at 19.9%.
The early indications from August are that the economy is not turning round. If anything, the downside risks are growing with the latest lockdowns to control new Covid-19 outbreaks and weaker export prospects as global markets slow.
Further monetary and fiscal stimulus to rev up domestic demand, including state money to revive property development projects, are likely as today’s cut in rates is too modest to have more than a marginal impact.