China’s economic slowdown is a surprise that ought not to be
US Federal Reserve and European Central Bank. Moves up or down in borrowing costs among that august group tend to be in increments of a quarter or half-point. The PBoC has elected to startle markets with a fraction of that.
Only one of the analysts surveyed by Bloomberg News had forecast it. Most reports point to an economy that, far from roaring back from ‘zero-covid,’ is struggling to make much headway. Less than an hour after the PBoC announcement came another slew of downbeat data: industrial production softened in July, retail sales rose much less than anticipated, property investment continued its losing streak and unemployment ticked up.
Troublingly, the National Bureau of Statistics said it would suspend publication of youth jobless figures. Recent reports had shown a jump in the number of young Chinese out of work. New PBoC chief Pan Gongsheng appears determined to prove that early assessments of him as hawkish were wide of the mark.
In the monetary arena, it is circumstances that shape policy, rather than the predilections of governors. If Pan had opted to refrain on Tuesday, what might have been on his mind? And why was the commentary geared for a more conservative approach? The PBoC isn’t prone to dramatic departures and officials have made it clear that, while the economy could use some juice, they are wary of a debt build-up. Beijing may also be keeping an eye on the yuan, which is down about 5% against the dollar this year, the biggest retreat among Asian currencies after the yen.
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