How far, or how soon will the Chinese leadership be able to leverage the much touted ‘Chinese resilience’ to come out of the economic difficulties the country is in today? The question assumes importance as some of the Chinese officials keep insisting that the situation is not as grave as analysts and the media, including in China, have made it to be. Does the complex August economic data released by China’s National Bureau of Statistics give any indication of the shape of things to come?

While the real estate sector and private sector investment, two important pointers of China’s potential post-Covid economic recovery, continued to be a worry, industrial production and retail sales showed the possibility of a likely improvement in the coming months.  In fact, retail sales rose by 4.6 percent year on year (yoy) in August against 2.5 percent in July, and the total value of industrial production rose by 4.5 percent in August from a rise of 3.7 percent in July. Interestingly, consumer price index rose by 0.1 percent yoy against a fall of 0.3 percent in July.

Are the new initiatives introduced to boost the economy starting to show early signs of a positive impact? Or, is the Chinese economy showing early signs of stabilising from the deflationary shocks observed recently?  It is too early to say anything for certain, particularly as the private sector, a major engine of China’s economic growth, is still on a sticky wicket. In fact, investments from the private sector fell 0.7 percent in the first eight months of the year (till August) against 0.5 percent in the first seven months (till July).

The biggest worry continues to be the property sector, that has been contributing about 30 percent to the country’s economy. Even as housing prices fell in 66 out of 70 cities surveyed by a government agency, investments in the property sector dropped by 8.8 percent. Investments in fixed assets overall rose by 3.2 percent in the first eight months of the year, in comparison to a growth of 3.4 percent in the first seven months of the year.

Sales in respect of developers who had government support looked a little better than those have not received such backing. The government claims that the increase in rents in some regions shows there is demand though people are not buying for various reasons. Anyway, the central government will ensure that the property sector doesn’t collapse like a house of cards for its implications will be devastating for the Chinese, and to an extent the global economy.

Analysts are near unanimous in their opinion that the government needs to speed up reversing at least some of a series of steps it had introduced over the years, particularly since 2017, to control overheating of the real estate sector. It has already put the much hyped introduction of nationwide property tax on the backburner. It was also observed that the government as slowly relaxing restrictions on loans by the developers as well as home buyers.

While China’s [official] surveyed urban unemployment rate came down by a marginal 0.1 percent from July’s 5.3 percent, separate data on youth joblessness rate (aged 16-24 years) was hovering above 21.3 percent in June when the government stopped publishing this data. [Government claims that the monthly surveyed unemployment rate captures all regular urban residents, including migrant workers, and does not include an upper age limit. However, these figures have traditionally been disputed by analysts in China and abroad.] Chinese leadership has always been worried about youth joblessness as a potential cause for instability.

At the lower levels, provinces and cities are cash strapped, with their debts mounting to US$12.8 trillion in 2022 (or even higher, according to some estimates). The local governments are reeling under these massive debts with no money to service it and thereby avoid public defaults. At the same time, they need liquidity to spend on new projects to help boost the economy. Their pleas to the central government to relax curbs on borrowing is being addressed carefully. The fact is that some of them urgently need billions to survive the current crisis. This, notwithstanding the possibility of a small number of provinces likely to invest in infrastructure projects with the proceeds from the special-purpose bonds issued in July.

In 2019, government agencies came out refuting reports of population decline as “fake news” and insisted that birthrate nationwide was fine. Now that the reports of population decline in sixty years came out, the same agencies are announcing incentives to reverse the trend. Another worry the country has started addressing is that of the ageing population.

While the central government periodically comes out with announcements (including a 31-point action plan) to support the private sector that contributes approximately 60% of China's GDP, 70% of its innovative capacity, 80% of urban employment and 90% of new jobs continues to complain about hidden barriers that restrict the possibility of its thriving as during the pre-Xi Jinping era. Their lack of trust in the Xi government, and the complaint that the state-owned sector is enjoying unequal benefits is evident from the fact that private investment during the January-August period fell by 0.7 percent yoy (against 0.5 fall in the January-July period) while investments in state-owned enterprises rose 7.4 percent.

While the August figures may indicate that China’s recent fiscal and administrative interventions may have helped in stabilising the situation to an extent, it is difficult to say whether the trend would continue in the coming months. One of the main reasons for this doubt is that the government has not indicated the possibility of unleashing any massive stimulus package, as it had done consequent to the 2008-09 global financial meltdown. By introducing piecemeal initiatives, it might be looking at the Japanese model of a long-term recovery.

Independent observers agree with Chinese analysts who claim that the country is likely to witness modest gains in the months ahead with likely new monetary easing and fiscal support initiatives and additional support for the housing sector. But, economists in general, including many in China, are of the view that the recovery would be bumpy especially in view of the headwinds it faces, like the trade war with the U.S., Russia’s Ukraine war that shows no signs of abating, decreasing demands globally and domestically, growing unemployment rates, dwindling population growth and an alarmingly growing ageing population, and cash strapped provinces unable to spend on any major projects or service the huge burden of debts they are holding.