China economy loses steam amid weak demand, coronavirus and floods, analysts say

Fresh data shows that China’s economy is still growing, but not as quickly as many economists thought

The Chinese government has failed to stimulate domestic demand, with analysts calling for more stimulus in the second half of 2020

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Industrial production, a measurement of manufacturing and mining output in the world’s second largest economy, continued on its four-month growth streak following a contraction in the first quarter, expanding by 4.8 per cent in July from a year earlier, the same pace as June. Photo: Xinhua

Published: 7:30pm, 14 Aug 2020Updated: 10:31pm, 14 Aug 2020

Facing a multitude of headwinds at home and abroad, from floods along the Yangtze River, to coronavirus outbreaks in the West, and an inability to stimulate domestic demand, analysts said China’s economic recovery lost its head of steam in July.

While the economy is still growing, it is being powered largely by the old levers of property and infrastructure investment, with President Xi Jinping’s stated aim of “dual circulation”, where China is powered by local demand, yet to kick into gear.

Instead, retail sales remain suppressed, shrinking by 1.1 per cent in July compared to a year earlier, meaning sales have yet to expand in any of the seven months of 2020.

Analysts warned of new slumps as the government cracks down on food wastage by forcing restaurants to serve fewer dishes, and tightens food imports due to fears of the coronavirus being imported on food products.

Domestic demand remains weak, and the main driver of economic activity is state-led investment and stockpiling of industrial goods and commodities

Imogen Page-Jarrett

Coronavirus was found on Brazilian chicken wings imported into Shenzhen this week, the third such instance on foreign meat or seafood in seven days, meaning more tightening in the imported food supply is likely.

“Retail sales will probably be worse next month, because of the new central government campaign to reduce food wastage in the restaurant sector,” said Imogen Page-Jarrett, an analyst at the Economist Intelligence Unit. “Domestic demand remains weak, and the main driver of economic activity is state-led investment and stockpiling of industrial goods and commodities.”

However, Shen Jianguang, chief economist at JD Digital, said Xi's drive for food security may not have a significant impact on the consumer market.

“Reducing waste does not mean no consumption, but more reasonable consumption,” he said. “China once restricted using public money for private consumption, but it did not affect the level of spending on [Chinese baijiu brand] Mao-tai in the end.”