BEIJING (AP) — A deepening slowdown is challenging Chinese leaders’ determination to stick with painful economic reforms they say will deliver more sustainable growth in the long run.
The latest gloomy data point: A manufacturing survey released Wednesday showed this month’s activity fell to an 11-month low.
Communist leaders are trying to make China more like developed economies that are powered by domestic consumption and reduce reliance on exports and investment. Advisers including the World Bank say that is the right path to keep incomes rising even if it causes growth to slow in the near term.
Beijing has resisted calls to stimulate the economy, which would require a new round of government-led investment that would set back their reforms. But they face mounting pressure after growth fell to a two-decade low in the latest quarter, raising the risk of politically dangerous job losses.
“The tolerance of slower growth is not unlimited,” said JP Morgan economist Haibin Zhu in a report.
The trigger for possible action, say analysts, will be jobs and whether the economy is creating enough of them. Steadily rising living standards help to underpin the Communist Party’s monopoly on power and the country’s unelected leaders worry unemployment might stir unrest. They express confidence but face forecasts that hiring will tumble as the economy cools.
News reports Tuesday that Premier Li Keqiang, China’s top economic official, said this year’s “bottom line” for growth is 7 percent stirred hopes Beijing might be planning at least a limited stimulus.
A drumbeat of data show growth in China’s retail sales, factory output and other segments of the economy not just slowing but falling below already conservative forecasts.
June exports were forecast to grow by low single digits but instead fell 3.1 percent from a year earlier. Retail sales growth failed to meet the government’s own projection. Economic growth of 7.5 percent in the three months ending in June was the fifth straight quarter below 8 percent.
Forecasters say growth could dip below 7 percent in coming quarters. That is far above the low single digits forecast for the United States, Europe and Japan, but below China’s double-digit rates of the past decade, which peaked above 14 percent in 2009.
That decline is forcing painful change, wiping out jobs in construction and other industries that depend on high growth to drive demand for new factories and other assets.
The quickest way to pump money into the economy is through higher spending on building subways and other public works.
The government has repeatedly used such spending to power its way out of downturns. A giant version of that helped China rebound quickly from the 2008 global crisis. But it came at a price, sharply raising China’s overall debt levels and fueling concern state banks might be hit by defaults after they lent heavily to finance stimulus projects.
Li warned in May that such stimulus spending was losing its effectiveness. He said achieving the ruling party’s growth targets this year would depend on pushing ahead with market-oriented reforms, though no major changes are expected until after a Communist Party congress in the autumn.
The ruling party’s plans call for encouraging consumer spending and service businesses such as entertainment and tourism. They are cleaner and create more jobs than investment-intensive steel production and other heavy industry.
“We see more jobs created and more investment directed into the service industry,” the finance minister, Lou Jiwei, said during last weekend’s meeting of the Group of 20 major economies in Moscow, according to the official Xinhua News Agency.
“That shows the increasing vitality of the economy,” Lou said.
The numbers, though, show Beijing is struggling to make headway in its effort to transform itself from an economy of factory and construction workers into a nation of consumers.
The share of the latest quarter’s 7.5 percent economic growth that came from investment rose to 5.9 percentage points from the previous quarter’s 2.3 percentage points, according to Mark Williams and Qinwei Wang of Capital Economics. The contribution from consumption dropped from 4.3 percentage points to 2.5 percentage points.
“China’s economy shows no signs yet of weaning itself off its reliance on investment,” they said in a report.
The ruling party has pledged to do more to support a private sector that creates China’s new wealth and jobs. They promised changes in the state-run banking industry this month to support credit-starved entrepreneurs, including possibly allowing privately owned lenders. But they have yet to launch major changes, which will take time to show results.
Wednesday’s survey by HSBC Corp. found manufacturing activity declined this month to 47.7 from June’s 48.2 on a 100-point scale on which numbers below 50 show a contraction in activity.
Manufacturing employment fell in July and did so at a faster rate than in the previous month, HSBC said.
“This adds more pressure on the labor market,” said HSBC economist Hongbin Qu in a report. He said that “reinforces the need to introduce additional fine-tuning measures to stabilize growth.”
Growth has been dented by a crackdown this year on a boom in bank lending. Tighter lending controls caused a temporary credit shortage in financial markets last month. Further controls, especially on unregulated private lending that supports entrepreneurs, could hurt companies that generate most of China’s new jobs and wealth.
If growth falls too far or the labor market worsens, “calls for measures to support growth will intensify and the government would oblige,” said RBS economists Louis Kuijs and Tiffany Qiu in a report.
Abroad, a steeper decline in Chinese growth could hurt exporters such as Australia and Brazil that have prospered by feeing its demand for iron ore and other commodities.
A decline of 1 percentage point in Chinese growth should translate into a loss of 0.3 percentage points in global growth, according to research published this week by Nomura economists Rob Subbaraman, Zhiwei Zhang, Michael Kurtz and Craig Chan.
The biggest losers would be Singapore, Taiwan and other Asian suppliers of industrial components, they said. Suppliers of iron ore and other commodities also would take a hit.
At the other end of the spectrum, the impact on the United States is forecast to be small because exports to China account for just 0.8 percent of annual economic output, the Nomura economists said. They said each loss of 1 percentage point in Chinese growth would knock just 0.2 percentage points off U.S. growth.
“Interestingly, the world’s largest economy — the United States — is among the least exposed,” they said.