How much worse can China's economic slowdown get?
China's economic activity data for July, including retail sales, industrial output and investment failed to match expectations, fuelling concern over a deeper, longer-lasting slowdown in growth.THE DEMISE OF CHINA'S GROWTH HAS BEEN MISTAKENLY FORECAST BEFORE. IS THIS TIME DIFFERENT? Activity data has been missing forecasts since the beginning of the second quarter, with the weakness raising worries that China's economy is coming closer to a crunch point.
It would not be for the first time. Alarm bells over growth rang during the global financial crisis in 2008-09 and during a capital outflow scare in 2015.
China came out of those with a shock boost to infrastructure investment and by encouraging property market speculation, among other measures. But infrastructure upgrades have created too much debt, and the property bubble has already burst, posing risks to financial stability.
Given China's debt-fuelled investment in infrastructure and property has peaked, and as exports are slowing in line with the global economy, China only has one other source of demand to tinker with: household consumption. In that sense, this slowdown is different.
Whether China bounces back largely depends on whether it can convince households to spend more and save less, and whether they will do so to such an extent that consumer demand compensates for weaknesses elsewhere in the economy.WHY ARE ECONOMISTS FOCUSING ON HOUSEHOLD DEMAND? Unlike consumers in the West, Chinese people were left largely to fend for themselves during the COVID-19 pandemic and the revenge spending spree that some economists expected after China re-opened never took place. But household consumption, as a percentage of gross domestic product (GDP), was among the lowest in
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