Unexpected collapse in the Chinese economy due to the real estate slowdown

Although China's export sector has achieved tremendous success, the weakest quarterly economic growth rate since the COVID pandemic was recently reported. For the quarter ending in June, the Chinese economy expanded by merely 4.3 percent, a figure significantly lower than the government's anticipated annual target of 4.5 to 5 percent.

This is considered one of the weakest data readings reported since official quarterly GDP data recording began in the early 1990s. Previously, lower economic growth was reported in the last quarter of 2022, when the country was still under strict COVID-19 restrictions.

This economic slowdown comes against the backdrop of data released by Chinese customs for June, which showed their total exports increased by 27 percent. Notably, while automobile exports exceeded one million for the first time in June, domestic vehicle sales fell by more than 16 percent. Retail trade excluding automobiles grew by only about 3 percent last month, with economists pointing out that the country needs more sustainable growth in consumption. These contradictory data indicate the extent to which China's economy relies on selling goods abroad, while it struggles to stimulate domestic consumer demand and investment.

The real estate and construction sectors, which were key drivers of the Chinese economy, are also currently experiencing a downturn. Such contractions in fixed asset investments have only occurred in 1961 and 1967 since the establishment of the People's Republic of China. Economic experts believe that broad measures are needed to boost consumer spending, reducing reliance on exports, which account for about 20 percent of GDP. Although the US-China trade war has somewhat eased, the Beijing administration remains highly vigilant, fearing that a re-imposition of tariffs in November would severely impact Chinese exporters and manufacturers. However, official statistics further indicate that with overall economic growth recorded at 4.7 percent for the first half of the year, the pressure on policymakers to undertake massive interventions to restore the economy might be somewhat reduced.