Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: I'm Stephen Carol and this is Here's Why, where we
Speaker 2: take one news story and explain it in just a
Speaker 2: few minutes with our experts here at Bloomberg. After decades
Speaker 2: of supercharged growth, China's economic miracle is dottering. A much
Speaker 2: anticipated post pandemic recovery appears to have flopped.
Speaker 1: You know, this is a moment in time where the
Speaker 1: global headlines are all looking more negative for China. Yeah,
Speaker 1: project prices country to decline, the which growth remains slow,
Speaker 1: labor market remains loose. There are all points two that
Speaker 1: consumption recovery will likely remain softer in the next couple
Speaker 1: of months.
Speaker 3: If the government is serious in terms of growing the
Speaker 3: economy by about five percent, we need more policy support
Speaker 3: from the government.
Speaker 2: The latest growth figures show the slowest pace of expansion
Speaker 2: in over a year. Consumer spending is we and the
Speaker 2: property slump is ongoing. The official growth target of around
Speaker 2: five percent annually is still within reach thanks to a
Speaker 2: boom and exports, but there are risks there too. So
Speaker 2: here's why China's economic outlook keeps getting worse. Are Greater
Speaker 2: at China. Executive editor John Leuho joins US now for
Speaker 2: more Hi John. So, the Chinese economy grew four point
Speaker 2: seven percent, but in April and June that's a figure
Speaker 2: other countries would love to see. But how bad is
Speaker 2: it in a China context? Well, it's kind of bad.
Speaker 3: It's the slowest that GDP has grown in six quarters,
Speaker 3: and I think beyond the actual pace of growth, it's
Speaker 3: the trajectory. And so you have to remember, for the
Speaker 3: first twenty years of this millennium, China was growing at
Speaker 3: nine ten double digit percentage points. When it came to GDP,
Speaker 3: I remember in two thousand and seven, I think it
Speaker 3: was the second quarter China's GDP grew fifteen percent. And
Speaker 3: so if you're coming from a world where GDP is
Speaker 3: growing that quickly to a world where it's growing at
Speaker 3: five four point eight, four point seven, it's a big
Speaker 3: come down, and I think that's what's got people worried.
Speaker 2: So one of the problem parts of the Chinese economy.
Speaker 3: Then, well, the biggest problem at the moment is the
Speaker 3: real estate sector. There was a housing bubble that burst
Speaker 3: about three years ago, and so we've seen prices come
Speaker 3: down substantially, sometimes by half in some Chinese cities. We've
Speaker 3: seen the number of homes sold falling tremendously. I think
Speaker 3: it fell twenty six twenty seven percent in the month
Speaker 3: of June from a year earlier. And we've seen the
Speaker 3: amount of money being spent to build new homes fall
Speaker 3: off dramatically as well. And so that is on one hand,
Speaker 3: reduced the amount of spending by developers. But more importantly,
Speaker 3: the vast majority of household wealth is stored in property,
Speaker 3: and so if home prices come down, everybody feels a
Speaker 3: little poor. And so that's led to a really subdued consumption.
Speaker 3: People are not as are not spending as much, they're
Speaker 3: trying to save more, and that's flowing into the economy
Speaker 3: and keeping things weak.
Speaker 2: So what is China doing about this? Then, present cheating
Speaker 2: thing says he wants high quality development. What does that mean?
Speaker 3: Well, high quality development is mostly about debt. So over
Speaker 3: the last five, six, seven, eight nine years, a lot
Speaker 3: of Chinese growth came from investment, and what that was
Speaker 3: was a local government's borrowing money to build roads, to
Speaker 3: build airports, to build apartment buildings, office buildings, And now
Speaker 3: all of those debts are coming due and those buildings
Speaker 3: and roads that were built, they're not generating the sort
Speaker 3: of economic activity that would help pay off those debts,
Speaker 3: and so overall debt for China is now in the
Speaker 3: neighborhood of something like three hundred and fifty percent of GDP.
Speaker 3: So President Hijiping is really worried that if China continues
Speaker 3: on this model, it's going to end very poorly. And
Speaker 3: so he's talking about high quality in the sense that
Speaker 3: we're going to get growth without creating more debt.
Speaker 2: Okay, So the third Planum Policy Meeting is meant to
Speaker 2: set long term economic goals, but will anything they decide
Speaker 2: actually help in the short term with the issues that
Speaker 2: you've been telling us about.
Speaker 3: There have been a lot of economists who have been
Speaker 3: suggesting and recommending that the government in Beijing give direct
Speaker 3: transfers to consumers, so just give the average Chinese citizen
Speaker 3: money like that happened in the United States during the pandemic.
Speaker 3: There's been a lot of hesitancy in terms of the
Speaker 3: government's response to those ideas. If we got some sort
Speaker 3: of change in the way the government looked at that proposal,
Speaker 3: that would really help with sentiment. Again, another thing, the
Speaker 3: retirement age. There's been a lot of economists suggesting the
Speaker 3: retirement age should be raised. If they came out and
Speaker 3: did that, that would have a very immediate impact as well.
Speaker 2: We've heard a lot in the conversation in the US
Speaker 2: election campaign about the threat of more tariffs on China.
Speaker 2: How much of a concern would that be for the
Speaker 2: Chinese economy.
Speaker 3: It would be a real concern consumptions down. As we
Speaker 3: talked about in one of the bright spots of the
Speaker 3: economy has been exports and specifically electric cars, batteries, solar panels,
Speaker 3: some of these new technology, high end industries, and if
Speaker 3: tariffs came in that one would really undermine the growth
Speaker 3: that exports has created in terms of jobs and investment
Speaker 3: here in China. But two, it would really undermine this
Speaker 3: further development of things like the electric car industry. If
Speaker 3: China wants its electric car industry to really grow and flourish,
Speaker 3: it needs to have access to foreign markets. If it
Speaker 3: can't sell to the US, if it can't sell to Europe,
Speaker 3: that's really going to make things tough.
Speaker 2: And China's targeting a growth rate of five percent over
Speaker 2: time or what that need to slow down. If we
Speaker 2: think about the future.
Speaker 3: As the economy gets bigger, I think naturally the pace
Speaker 3: of growth will slow, and if China wants to achieve
Speaker 3: high quality growth as we talked about, that pace will
Speaker 3: have to come down as well. But I think there's
Speaker 3: different ways to look at it. At five percent, China's
Speaker 3: a seventeen trillion dollar economy. At five percent, that's adding
Speaker 3: about eight hundred and fifty billion dollars of economic activity years.
Speaker 3: That's the size of Switzerland basically, and so yes, the
Speaker 3: economy will grow more slowly, but it will still be
Speaker 3: a big, big impact on overall growth globally.
Speaker 2: What does though a weaker Chinese economy in terms of
Speaker 2: growth mean for the rest of the world.
Speaker 3: I mean, China is a huge in market for a
Speaker 3: lot of things. It's a huge market for iPhones. Recently,
Speaker 3: we've had some news about Apple selling eight billion US
Speaker 3: dollars worth of stuff in India, and there's a lot
Speaker 3: of excitement about that because it's growing very quickly. But
Speaker 3: just to give your sets by comparison, Apple sells seventy
Speaker 3: two billion dollars worth of stuff in China. So it's
Speaker 3: a huge market for lots of very big important companies.
Speaker 3: And if that market slows If that market shrinks, it'll
Speaker 3: have big impacts all around the world.
Speaker 2: Thanks to our Greater China Executive editor, John lu. For
Speaker 2: more explanations like this from our team of twenty seven
Speaker 2: hundred journalists and analysts around the world, search for quick
Speaker 2: take on the Bloomberg website or the Bloomberg Business app.
Speaker 2: I'm Stephen Caroll. This is here's why. I'll be back
Speaker 2: next week with more. Thanks for listening.