The measure was expected by investors, worried about the lack of strength of the recovery in China. After the publication of once again disappointing indicators for the month of May, the Chinese authorities decided on a cautious stimulus. On Thursday, May 15, the People’s Bank of China lowered the benchmark medium-term lending rate from 2.75 to 2.65%, and injected 237 billion yuan (30.6 billion euros) into the economy. . The measure, which allows commercial banks to finance themselves and lend more easily, was enthusiastically welcomed by investors, who see it as a first step towards more support for the economy.
It must be said that household consumption remained sluggish in May: retail sales increased by 12.7% over one year, but on the weak basis of a month of May 2022 marked by the confinement of Shanghai. Over one month, the increase was 0.42%. If tourism is doing well, supported by the holidays from 1er May, spending on restaurants fell by 1.7% and online sales by 1.8% over one month. Loan demand is also slowing. “Trouble in the real estate sector and still weak consumer confidence jeopardize the longevity of China’s post-reopening spending recovery”interprets in a note Louise Loo, economist in charge of China at Oxford Economics.
Industrial production also slowed in May (+3.5% over one year against +5.6% in April). In question, large stocks, and the decline in exports (- 7.5% in May, after + 8.5% in April). While global demand had enabled the Chinese economy to resist over the past three years, despite weak domestic demand, today the opposite is happening: while China is reopening, global demand is at half mast weighs on an economy that remains dependent on its foreign trade.
Employment, another challenge
Employment is another challenge: at 20.8%, youth unemployment is at a record high, and is expected to continue to rise when 12 million young graduates enter the job market in July. While the overall unemployment rate remains low (5.2%), it is calculated for urban areas only and therefore does not paint a complete picture of the situation: many migrant workers return to their villages if they cannot find working in big cities.
Investment, which is slowing down, remains supported by the public sphere, local governments and state-owned companies. Private investment is flat and it is falling in real estate (–7.2%). The beginnings of construction sites even plunged by 22.6% over one year. Under these conditions, the marginal fall in rates should not be enough to boost confidence: “I think it’s too little too late. Right now, banks have plenty of cash, but they’d rather buy Treasury bills than lend. The only way to reverse the trend would be to distribute money directly to households,” explains Dan Wang, chief economist for the Hong Kong bank Hang Seng. While local governments have offered vouchers here and there, these transfers are too small to change the situation. The authorities generally prefer to reduce burdens on businesses and invest in infrastructure. “But local governments are over-indebted and already struggling to find viable projects”continues Dan Wang.