China is grappling with mounting economic challenges as its factory activity contracts for the fourth consecutive month and the property market continues to slump. The government’s growth target of around 5% is increasingly in jeopardy, with economists urging more robust policy support to stabilize the economy.
In August, China’s official manufacturing purchasing managers’ index (PMI) fell to 49.1, indicating continued contraction, while sub-indexes showed worsening deflationary pressures. The prolonged downturn in the manufacturing sector has been exacerbated by trade tensions with the US and Europe, as well as seasonal factors like high temperatures and heavy rainfall.
The property market, a key pillar of China’s $17 trillion economy, is also facing significant difficulties. New-home sales from the 100 largest real estate companies plummeted by 26.8% in August compared to the previous year. This deepened the crisis in the sector, with major developers like China Vanke Co. reporting substantial losses.
In response, China is exploring measures such as allowing homeowners to refinance up to $5.4 trillion in mortgages to boost consumption. However, analysts caution that while this could benefit households, it may not be sufficient to counter the broader economic downturn.
Economists from institutions like UBS and JPMorgan predict that China may fall short of its growth target without additional fiscal and monetary support. They argue that the government needs to accelerate spending to lift aggregate demand, especially as external demand for Chinese exports may weaken.
Despite the concerning data, Finance Minister Lan Fo’an recently stated that the economy is still growing at a 5% rate, describing it as “generally stable.” However, the slow pace of government spending—less than half of budgeted expenditure has been used in the first seven months of 2024—has raised concerns among economists about the sustainability of this growth.
As China navigates these headwinds, it has implications for African countries such as Ghana, who import finished goods and export raw materials to the world’s most populous country.
