China’s economy mired in the quagmire, Li Keqiang’s push for domestic demand criticized as empty words

China’s economy is claimed to be deeply mired in trouble. Following the Beidaihe Conference, Chinese Premier Li Keqiang convened a State Council meeting yesterday (16th) and reiterated the need to expand domestic demand, stating that significant efforts must be made to stimulate economic recovery. Experts believe that Li Keqiang’s statements are just empty words, as Beijing fails to combine economic measures with improving foreign relations, making it difficult to reverse the current economic predicament.

After the high-level Chinese Communist Party (CCP) Politburo meeting on July 30th, the leadership has been in seclusion for a “vacation” in Beidaihe, until Li Keqiang reappeared on August 16th. Xinhua News Agency reported that Li Keqiang presided over the fifth plenary session of the State Council on that day.

At the meeting, Li Keqiang began by expressing loyalty to Xi Jinping, stating his need to “profoundly understand” Xi’s deepening reform “new ideas, new perspectives, new judgments.” He emphasized the necessity to “make great efforts to enhance the continuous recovery and positive momentum of the economy,” with a focus on “more vigorous expansion of domestic demand to boost consumption.”

Political commentator Li Lin told media that Li Keqiang’s immediate reiteration of Xi’s so-called “new perspectives, new judgments” upon returning from Beidaihe indicates that the CCP’s economic approach essentially remains Xi Jinping’s left turn, showing Li Keqiang lacks any autonomy, and his remarks bring nothing new to the table; thus, it’s just empty talk. “The reform measures released after the Third Plenary Session did not gain market approval, with the stock market continuously falling. It’s evident that people lack confidence in the CCP and Xi Jinping, making Li Keqiang’s efforts fruitless.”

The CCP claimed to introduce 300 measures for “deepening reform” at the end of the Third Plenary Session on July 18, but the expected effects have not materialized. A week later, the stock market began a continuous decline, breaking below the 2,900-point mark, with no signs of recovery as of August 16.

According to a report by Voice of America, Li Keqiang’s speech at the State Council meeting focused on the issue of “expanding domestic demand and boosting consumption,” highlighting the serious extent of China’s consumption problems that may surpass external perceptions.

Recently, Huang Yiping, a member of the People’s Bank of China Monetary Policy Committee, publicly called for a shift in the policy concept of “heavy investment, light consumption,” urging Beijing to strengthen efforts to stimulate consumption, and even suggesting direct government cash distribution to the public.

David Huang, an economic scholar in the United States, told Radio Free Asia that this meeting by Li Keqiang is an attempt to send a positive signal to the market, but concrete measures in the next steps need to be observed. He emphasized that if these measures are not combined with improvements in foreign relations, solely economic measures will find it challenging to reverse the economic crisis.

“These circumstances are not something that can be changed solely by the State Council’s policies or documents, especially concerning (foreign) trade relations. Additionally, the level of recognition by European and American countries towards China is also a problem,” said Huang.

Despite the three years of zero-tolerance policies towards the pandemic, and despite the relaxation of restrictions since the end of 2022, China’s economy has not picked up. Just one day before Li Keqiang’s speech, the National Bureau of Statistics of China released the economic data for July, showing a loss of momentum in the Chinese economy.

Official data indicates that China’s national industrial added value increased by 5.1% year-on-year in July, a 0.2 percentage point decrease from the previous month, with the growth rate continuously declining for four consecutive months. Fixed asset investment growth slowed in the period from January to July. Real estate development investment dropped by more than 10.2%. National newly built commercial housing sales area decreased by 18.6% year-on-year, with sales revenue plummeting by nearly a quarter (24.3%).

Domestically, the consumption of large items such as automobiles and jewelry is weakening.

The job market is deteriorating. Official data shows that in July, the youth unemployment rate rose to 17.1%, the highest level of the year. The national urban surveyed unemployment rate in July rose to 5.2%, reaching a four-month high. The CCP’s official data has been criticized for covering up the truth. For example, after the youth unemployment rate for those aged 16 to 24 rose to 21.3% last June, the authorities stopped releasing the data, only resuming its publication from January of this year, excluding students from the unemployment rate data.

Furthermore, the CCP only calculates urban unemployment rates and does not account for the vast rural unemployed population.

Mainland China’s Caixin website cited several experts’ analysis, indicating that the “strong supply and weak demand” characteristic in the July macroeconomics remains evident, mainly due to the continuous adjustments in the real estate industry, causing weak internal economic growth momentum represented by resident consumption and private investment.

Liu Aihua, spokesperson for the National Bureau of Statistics of China, confessed at a press conference on the 15th that there is insufficient domestic effective demand, attributing it to the “reflection of the pains of transitioning between old and new growth drivers,” and noting that short-term factors like high temperatures, heavy rain, and flooding have also disturbed economic operation.

An article published by the Wall Street Journal on Friday titled “Latest Data Shows China’s Economy Still Stuck in Mire” points out that the CCP’s efforts to address the challenges in the real estate industry and stimulate consumption have “yet to bear fruit,” as the Chinese economy struggles to regain momentum.

Zhu Haibin, Chief Economist for China at J.P. Morgan, stated that following disappointing data in June, his team has revised their forecast for China’s GDP growth this year from the previous 5.2% to 4.7%. Other investment banks, including Goldman Sachs and Barclays, have also made similar downward revisions.

During the Summer Davos Forum in Dalian on June 25th, Li Keqiang made remarks about China’s economy that “we cannot use strong medicine,” which were subsequently censored by the authorities. Wang Guochen, a research assistant at the China Economic Research Institute, told a media outlet that Li Keqiang’s words to some extent expose that the Chinese economy is beyond remedy, and leaking state secrets leads to being silenced.

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