China's economic activity data for July, including retail sales, industrial output and investment failed to match expectations, fuelling concern over a deeper, longer-lasting slowdown in growth.
THE DEMISE OF CHINA'S GROWTH HAS BEEN MISTAKENLY FORECAST BEFORE. IS THIS TIME DIFFERENT?
Activity data has been missing forecasts since the beginning of the second quarter, with the weakness raising worries that China's economy is coming closer to a crunch point.
It would not be for the first time.
Alarm bells over growth rang during the global financial crisis in 2008-09 and during a capital outflow scare in 2015. China came out of those with a shock boost to infrastructure investment and by encouraging property market speculation, among other measures.
But infrastructure upgrades have created too much debt, and the property bubble has already burst, posing risks to financial stability.
Given China's debt-fuelled investment in infrastructure and property has peaked, and as exports are slowing in line with the global economy, China only has one other source of demand to tinker with: household consumption.
In that sense, this slowdown is different.
Is China facing a deeper and longer lasting slowdown in growth?
From retail sales to industrial output, July's numbers fell short of expectations.
Some fear the country's economy could be reaching a crunch point.
So how much worse can the slowdown get?
China's been here before.
Alarm bells over growth went off during the 2008 global financial crisis and again in 2015.
To cope, Beijing boosted infrastructure investment and encouraged property market speculation.
But that created debt and the property bubble has already burst.
Now there's really only one source of demand to tinker with.
That's household consumption.
So why is that so important?
Even before the pandemic, China's consumption as a percentage of GDP was among the lowest in the world.
Economists say that weak demand has dampened appetite to invest in the private sector.
In fact, the gap between consumption and investment is deeper than Japan's was before it entered its so-called lost decade of stagnation in the 1990s.
And remember post-pandemic revenge spending?
Well, unlike the West, that never really happened in China.
People were largely left to fend for themselves during the health crisis.
So now the question is whether China can convince households to spend more and save less,
and whether that can be enough to compensate for other weak points in the economy.
Ultimately, that will reveal whether this slowdown is different.
In terms of what could help, economists are watching for Communist Party measures that would boost household consumption.
Think big tax cuts, unemployment benefits, higher pensions and better public services.
And yes, China's central bank did surprise markets by cutting interest rates in mid-August.
But economists warn that won't be enough to make a meaningful difference.
What those cuts will do is signal to markets that officials want to stimulate the economy.
