China tries to boost consumer spending as factory sector contracts for fourth month

By Laura He and Wayne Chang, CNN

Hong Kong (CNN) — China unveiled a series of measures to boost domestic consumption Monday after more gloomy data about the health of the economy. But it stopped short of announcing a major package of new spending or tax cuts.

The official Purchasing Managers’ Index (PMI), which measures activity in the manufacturing sector at mainly larger business and state-owned firms, came in at 49.3 in July, according to data released by the National Bureau of Statistics on Monday.

That result was slightly up compared with 49 in June but the industry has now contracted each month since April. A PMI reading above 50 indicates expansion, while anything below that level shows contraction.

The official non-manufacturing PMI, which looks at activities in services and construction, also fell, to 51.5. That is the lowest rate since December, when the index hit its weakest level since February 2020 at the start of the coronavirus pandemic.

By the end of last year, Covid infections were sweeping through China after Beijing abruptly ended nearly three years of draconian pandemic restrictions that initially kept the virus at bay while hammering local businesses and isolating the world’s second largest economy.

“Boosting consumption is the key in stimulating recovery and expanding demand,” said Li Chunlin, deputy director of the National Development and Reform Commission (NDRC), the country’s top economic planner, at a press conference in Beijing.

The NDRC on Monday released a policy document containing 20 measures to restore and expand consumption.

“China’s official PMI data provides little encouragement that the economy is turning the corner,” said Robert Carnell, regional head of research for Asia-Pacific at ING Group.

Monday’s manufacturing and service sector figures are just latest data points that show how China’s economy is struggling.

China’s GDP grew just 0.8% in the second quarter of this year, down significantly from tepid 2.2% growth it registered in the first three months of 2023. Consumer spending has weakened, the housing market has slumped, and the youth unemployment rate has soared to a fresh record of 21.3%.

Much like many other parts of the world this summer, extreme weather has also posed a threat to economic growth.

In recent weeks parts of China have been hit by a double whammy of heat waves and torrential rain, threatening to strain power supplies and disrupt factory production as well as crop yields.

New measures to boost consumption

The frail data has prompted Beijing to increase efforts to shore up growth, with a series of announcements in recent weeks.

The measures announced by the NDRC on Monday cover a wide range of industries, including automobile, real estate, electronic products, and services industry.

Officials from four other central agencies, including the Ministry of Industry and Information Technology and the Ministry of Culture and Tourism, also said at the press conference that they would roll out specific measures to support their respective industries.

They include increasing consumer loans to encourage car purchases, building more EV charging facilities, building more affordable homes for young people, supporting the consumption of wearable devices and smart products, and encouraging local governments to hold food, music, and sports festivals to attract tourists.

On Friday, China unveiled a two-year plan to boost so-called “light industry,” which includes consumer packaged goods, consumer durables, sports and leisure equipment, and light industrial machinery, according to a statement jointly published by the NDRC, MIIT, and the Ministry of Commerce.

The goal is to speed up the industry’s growth to 4% for 2023 and 2024, after it only registered a 0.4% expansion in the first half of the year, the statement said.

In the past weeks, authorities have tried to appear more proactive in supporting the private sector, a key growth driver that has been hammered by Covid restrictions as well as a sweeping regulatory crackdown under Chinese leader Xi Jinping that targeted sectors from technology to private education.

However, these micro measures have not translated into the sort of “sizable fiscal policy stimulus” many have expected, Carnell said.

“Looking forward, policy support is needed to prevent China’s economy from slipping into a recession,” said analysts from Capital Economics.

“Unless concrete support is rolled out soon, the recent downturn in demand risks becoming self-reinforcing.”

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