China’s economic slowdown is real

China is slowing quickly, and the government is taking only modest steps to try to keep the world’s second-largest economy from deflation..

why does it matter: While it lags behind the United States in size, the Chinese economy has been the largest source of global GDP growth for most of the past two decades—meaning it is a global driver of corporate profitability, investment activity, and commodity demand.

News leadership: A batch of disappointing economic updates this week showed that Chinese growth is still faltering on multiple fronts.

• Its industrial sector slowed again. Industrial production rose only 3.8% in July from a year earlier – well below expectations of 4.5%.
• The A crisis in the housing sector in China It still hurts. Fixed investment – of which housing is an important component – rose only 5.7% in the first seven months of the year, compared to the same period in 2021. (In 2021, this number was 10.3% higher year-on-year as of July.)
• Consumers aren’t picking up the slack either. Retail sales in July rose 2.7% year-on-year, well below the 5% forecast.

context: In the recent past, when Chinese policymakers faced a slowdown, they quickly turned to tried and true tools to try to give growth a boost in the pants. Among them was…

• Inject money into investing in public infrastructure.
• Engineering the borrowing boom to fuel domestic spending.
• Make sharp cuts in interest rates.

The plot: Despite China’s current economic platitudes, there are few indications that the government is decisively trying to support growth.

• In past slowdowns, China’s broader measure of all kinds of credit to the economy — known as “macro social finance” — has risen in a sign that the government is keen to raise debt to offset the slack.
• Show Friday report Total social funding is much lower than expectedThe government appears unwilling to use a debt-driven boom as a source of growth.

Yes, but: The People’s Bank of China cut interest rates by A tiny fraction of a tenth of a percentage point on Monday – A move that most analysts believe is modest, and is unlikely to stimulate economic activity.

Bottom line: The ruling Communist Party of China knows that the rapid pace of China’s economic growth of past decades is unlikely to be matched. But unlike decades past, they don’t seem particularly concerned about that.

• For the rest of the world, it could mean that China will be a less reliable engine of growth in the coming years.