What’s going on here? Data out on Wednesday showed that China’s rapid recovery has been usurped by a sedate slow-poke. What does this mean? Another month, another truckload of data showing that China’s economy isn’t going in the right direction. Just look at the country’s service sector, where growth slowed to its weakest pace since January last month. And that’s far from the only fly in the ointment: manufacturing activity, for one, has now been shrinking for three straight months. That comes as weaker consumer spending, a shaky housing market, and high youth unemployment are all threatening the economy, showing that China’s not exactly on the firmest foundations right now. And that means all eyes are on the government’s next move – especially with the all-important Communist Party meeting coming up later this month. Why should I care?
The bigger picture: Small fry feel the burn. The People’s Bank of China already cut interest rates for the first time in nearly a year in June. But there’s an issue: it seems that’s mostly been benefiting state-owned enterprises and bigger firms, leaving the smaller, private firms struggling to access funds. And while that’s a problem the People’s Bank of China is trying to fix, it’s not clear if any juicier, more aggressive measures will actually be brought in. After all, even with this data, the government’s not under any great pressure to act: economists are still predicting 5.5% economic growth this year, comfortably above the government’s 5% target. For markets: Two-part wish list. Chinese stocks kicked off the year with a bang – but those former high-flyers have since tumbled over 20% from their January peaks. The culprits: a sluggish economic rebound and rising tensions with Uncle Sam. That means hopes for a second-half comeback hinge on two key things: a thaw in US-China relations, with a much-touted meeting taking place this week, and some potential new stimulus measures to boot. | 