China unexpectedly cuts key rates as economic data disappoints

The headquarters of the People's Bank of China, the Chinese

central bank, are pictured in Beijing on Aug. 7, 2011. (AFP/Mark
Ralston) Share Reuters Beijing   ●   Mon, August 15, 2022 China's
economy unexpectedly slowed in July, data showed on Monday,
with factory and retail activity squeezed by Beijing's zero-COVID
policy and a property crisis, while the central bank surprised
markets with key lending rates cuts to revive demand. Industrial
output grew 3.8 percent in July from a year earlier, after
expanding 3.9 percent in June, data from the

National Bureau of Statistics (NBS) showed. That compared with a

4.6 percent increase expected by analysts in a Reuters poll. Retail
sales, which only turned positive in June, rose 2.7 percent from a
year ago, greatly missing analysts' forecast for 5.0 percent growth
and below the 3.1 percent growth seen in June. The world's
second-biggest economy narrowly escaped a contraction in the
June quarter, hobbled by the lockdown of the commercial hub of
Shanghai, a deepening downturn in the property market and
persistently soft consumer spending. However, risks to growth
abound as many Chinese cities, including manufacturing hubs and
popular tourist spots, imposed lockdown measures in July after
fresh outbreaks of the more transmissible Omicron variant were
found. The property sector, which has been further rocked by a
mortgage boycott that weighed on buyers' sentiment, deteriorated
in July. Property investment tumbled 12.3 percent in July, the
fastest rate this year, while the drop in new sales deepened to
28.9 percent. "All economic data disappointed in July, with the
exception being exports. Loan

demand from the real economy remained weak, suggesting

cautious outlook for the months ahead," said Nie Wen, Shanghai-
based economist at Hwabao Trust, adding that COVID outbreaks
and the heatwaves in July weighed on activity. Nie lowered his
forecast for three-quarter gross domestic product growth by 1
percentage point after the data release to 4-4.5 percent. "Now it is
looking increasingly challenging to even achieve the 5-5.5 percent
growth in the second half." Chinese policymakers are trying
balance shoring up a fragile recovery and eradicating emerging
COVID clusters with the economy expected to miss its official
growth target this year - set at around 5.5 percent - for the first
time since 2015. Fixed asset investment, which Beijing had hoped
would drive growth in the second half as exports soften, grew 5.7
percent in the first seven months of the year from the same period
a year earlier, versus a forecast 6.2 percent rise and down from a
6.1 percent jump in January-June. The employment situation
remained fragile. The nationwide survey-based jobless rate eased
slightly to 5.4 percent in July from 5.5 percent in June, although
youth unemployment stayed stubbornly high, reaching a record
19.9 percent in July. In order to prop up growth, the central bank
on Monday unexpectedly lowered interest rates on key lending
facilities for the second time this year. New yuan loans tumbled by
more than expected in July as companies and consumers stayed
wary of taking on debt, data showed on Friday. Wang Jun,
economist at Zhongyuan Bank, believe authorities will focus on
implementing existing policies, rather than roll out aggressive new
stimulus. "We are now facing a typical liquidity trap problem. No
matter how loose the credit supply is, companies and consumers
are cautious in taking on more debt," Wang said. "Some of them
are now even paying back their debt in advance. This may herald a
recession."

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