CCP Cuts Interest Rates Due to Depressing Economic Figures

The Data on Monday (August 15th) showed that communist China’s economy slowed unexpectedly in July. With factories and retail activities squeezed by Beijing’s “Zero-Covid” policy and real-estate crisis, People’s Bank of China cut key lending interest rates to revive demand. All this surprised the market.

According to data from the National Bureau of Statistics, industrial output increased by 3.8% year-on-year in July, compared with 3.9% in June. In contrast, a media survey shows that analysts are expected to grow by 4.6%.

Retail sales, which only turned positive in June, increased by 2.7% year-on-year, which was much lower than analysts’ forecast for 5.0% growth and 3.1% growth in June.

Communist China, which is the world’s second largest economy, narrowly escaped the economic contraction in June due to the lockdown of Shanghai, its business center, the deepening of the real-estate market recession, and the continued weakness of consumer spending.

However, mainland China’s economy still faces many risks, because many Chinese cities, including manufacturing centers and popular tourist attractions, imposed lockdown measures in July after the discovery of a more Omicron cases.

The real-estate sector was further hit by mortgage resistance in July, affecting buyers’ sentiment, and the sector deteriorated in July. Real estate investment plummeted 12.3% in July, the fastest rate so far this year, while the decline in new sales deepened to 28.9%.

“All the economic data for July are disappointing, except for exports.” said Nie Wen, Shanghai-based economist at Hwabao Trust. “The demand for loans in the real economy is still weak, indicating cautious prospects in the coming months.” He added that the COVID outbreak and heat temperature in July affected the economy.

Nie Wen, lowered his forecast for the third-quarter gross domestic product growth by 1% to 4-4.5%, after the weaker-than-expected data.

“Now we can see that even achieving a growth of 5-5.5% in the second half of the year, the challenge is increasing.”

Policymakers in China are working hard to balance the consolidation of fragile economic recovery and the elimination of emerging COVID-19 clusters. As a result, the economy is expected to fail to meet its official growth target of about 5.5% in this year – for the first time since 2015.