1. China’s ruling Communist Party started a four-day meeting today that is expected to lay out a strategy for self-sufficient economic growth in an era of heightened national security concerns and restrictions on access to American technology. While the meeting typically focuses on such long-term issues, business owners and investors will also be watching to see if the party announces any immediate measures to try to counter a prolonged real estate downturn and persistent malaise that has suppressed China's post-COVID-19 recovery. “There’s a lot of unclarity of policy direction in China,” which is weighing on consumer and investor confidence, said Bert Hofman, the former World Bank country director for China and a professor at the National University of Singapore. “This is a point in time where China needs to show its cards.” (Source: apnews.com)
2. China’s economy grew at the worst pace in five quarters as efforts to boost consumer spending fell short, piling pressure on Beijing to lift confidence at a twice-a-decade policy meeting this week. Gross domestic product expanded 4.7% in the second quarter from the same period a year earlier, undershooting economists’ median forecast of 5.1%. Retail sales rose at the slowest pace since December 2022, showing a flurry of government efforts to juice confidence have done little to reinvigorate the Chinese consumer. “The government will need to mull greater policy supports to deliver its annual growth target of around 5% after the disappointing second quarter data,” said Xiaojia Zhi, an economist at Credit Agricole CIB in Hong Kong. “The increasing likelihood of Trump 2.0 also means that China will need additional policy efforts to boost its domestic demand in a timely manner, as external demand downside risks loom.” (Source: bloomberg.com)
3. For years, scores of Chinese cities have together amassed trillions of dollars in off-the-books debt for economic development projects. The opaque financing was the yeast that helped China rise to the envy of the world. Today, overgrown construction sites, sparsely used highways and abandoned tourist attractions make much of that debt-fueled growth look illusory and suggests China’s future is far from assured. At the heart of the mess are the complex state-owned funding vehicles that borrowed money on behalf of local governments, in many cases pursuing development projects that generated few economic returns. The deterioration of China’s real-estate market in the past three years meant local governments could no longer rely on land sales to real-estate developers, a significant source of revenue. Economists estimate the size of such off-the-books debt is somewhere between $7 trillion and $11 trillion, about twice the size of China’s central government debt. The total amount isn’t known—likely not even to Beijing, say bankers and economists—because of the opaqueness surrounding the financial arrangements that allowed the debt to balloon. Top Chinese leaders are expected to raise the looming threat at a long-awaited summit starting Monday that will chart a course for China’s economy. What is clear is that all of this built-up debt is part of what is preventing China from doing more to stimulate its economy. (Source: wsj.com)
4. China’s home prices fell again in June, underscoring the challenge for policymakers to halt the property market slump that’s hurting developers and the economy. New-home prices in 70 cities, excluding state-subsidized housing, dropped 0.67% from May, when they slid 0.71%, the most since October 2014, National Bureau of Statistics figures showed Monday. Values of existing homes declined 0.85%, compared with a 1% decrease a month earlier. The figures add to evidence that a rescue package unveiled in May has done little to boost sentiment in the real estate market. Yet few expect more aggressive measures to emerge from a key five-year meeting of Chinese Communist Party officials starting Monday. Pressure on prices is likely to remain as developers and homeowners resort to deep discounts to offload homes. “Fears of catching a falling knife could deter property investment,” Bloomberg Intelligence analysts Kristy Hung and Monica Si wrote in a recent note. “Excessive inventory of new and existing homes added pressure for further price drops.”(Source: bloomberg.com)
5. Nikkei Asia graphic:
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