Recovery still loading… Many were expecting a huge rebound in China after the world’s second-largest economy unwound its zero-Covid policy this year. Following years of lockdowns, Chinese consumers were expected to come roaring back with open wallets. That hasn’t been the case: China’s reopening started off as meh and has only gotten worse.
Growth = slow. China’s second-quarter GDP growth was disappointing, decelerating from an underwhelming pace in Q1.
Unemployment = high. Youth unemployment in China hit a record high in June, with 21% of 16- to 24-year-olds in cities without work.
Exports = low. Last month, China’s global exports sank at their steepest pace since early 2020 as Western consumers pulled back on Made-in-China goods.
The stimulus isn’t stimulating… Remember when the US tried to save the Covid-plunged economy with trillions in stimulus and low interest rates? The effort worked almost too well, supercharging consumer demand along with inflation. China’s also trying to revive spending through stimulus, but strangely, it recently tipped into deflation (falling prices). If consumers start to expect falling prices, it could weigh on demand even further. The deflation is a red flag not just for China but for the global economy.
China’s recovery is bigger than China… US multinationals were hoping that China’s reopening would give them a boost as Americans started pulling back at home. But this year lots of companies have felt the effects of China’s slump: most recently, tractor titan Caterpillar and chemical giants DuPont and Dow reported hits to their China earnings. Yet consumer-focused companies like Apple, Starbucks, and Marriott saw significant growth in the country last quarter.