China’s economy returned to growth during the second quarter after a very slow start to the year, but there are growing concerns of weak domestic demand due to the COVID-19 pandemic.
This weak domestic consumption was emphasised by the growing need for more policy support in order to boost the recovery of the pandemic.
Asian share markets and the Chinese yuan fell, mainly as a result of the very large challenges that Chinese economy is facing due to the pandemic, the tensions with the United States over trade and technology, as well as the current conflict with Hong Kong.
China’s gross domestic product (GDP) in the second quarter managed to increase by 3.2% from the previous year, according to the National Bureau of Statistics on Thursday.
This rate was faster than the 2.5% forecast by several analysts, with several lockdown measures being eased and policymakers formulated strategies to fight the economic downturn primarily caused by COVID-19.
However, the rise was still the weakest growth recorded, following a very steep 6.8% decline during the first quarter, with this downturn being the worst since the early 1990s.
ANZ bank’ senior China economist, Betty Wang, claimed that “policy support is still needed despite recovering growth momentum.”
She also added that “The possibility of resurgences in local COVID-19 cases, global economic uncertainty and the deteriorating China-U.S. relationship all pose downside risks to China’s H2 growth outlook.”
Separate retail data backs Wang’s claims, showing that Chinese consumers have refused to spend, leading to a very troubling outlook both domestically and overseas for China, with many countries still struggling with the COVID-19 pandemic.
The surge in COVID-19 cases worldwide is led by none other than China’s biggest rival at the moment, the United States.
According to Rodrigo Catril, a foreign exchange strategist at NAB in Sydney, June indicators as well as GDP numbers beat expectations, but show how much the government is leading the recovery, not the consumers, with the consumers still being very cautious, “something the market is looking at in terms of countries where the consumer plays a bigger role,”.
Retail sales managed to fall by 1.8% in June from the previous year, which was the fifth consecutive month of decline, which was much worse than the expected growth of 0.3%. Retail sales fell by 2.8% during May.
Additionally, domestic job losses were also worries for consumers, with many businesses having to let go of workers, leading to consumers to saving even more due to lack of money.
The increasing tensions with the United States, along with the pandemic have continued to add to the major structural issues that the second-largest economy in the world has been facing for numerous years, such as over-investment, demographic changes, as well as high debt levels.
There is a growing desire for domestic demand in China, and if this is not done then China might end up facing an even worse year than they have already suffered.