Stumbling Chinese Economy... Seeking Breakthroughs in Private and Foreign Investment

Exports and domestic demand, which have supported the Chinese economy, are rapidly contracting. The government appears to be seeking a breakthrough by attracting private companies and foreign investors. However, due to prolonged high-intensity regulations and closed policies, the market still harbors concerns about uncertainty.

According to the General Administration of Customs of China on the 13th, China's exports in June decreased by 12.4% year-on-year in dollar terms. This figure falls short of both the previous month's figure (-7.5%) and the forecast (0.5%). Monthly exports had been declining from October last year (-0.3%) through February (-6.8%), rebounded in March (14.8%) and April (8.5%), but plunged again in May (-7.5%).

Domestic Demand Followed by Export Contraction
China Points to "Unilateralism and Protectionism" as Causes

Imports also declined due to weak demand. China's imports in June fell by 6.8%, missing both the previous month's figure (-4.5%) and the forecast (-6.1%). Monthly imports have shown negative growth for eight consecutive months since October last year (-0.7%).

The trade surplus was recorded at $70.6 billion (approximately 90.015 trillion KRW). Although this is an improvement from the previous month's $65.8 billion, it fell short of the forecasted $93.9 billion. L? Daliang, spokesperson for the General Administration of Customs, explained last month regarding trade performance that "the weak global economic recovery, slowdown in trade and investment, unilateralism, protectionism, and increased geopolitical risks have caused poor export performance."

Some market analysts predict that China's economic growth rate for this year may be around 3%. The second-quarter gross domestic product (GDP) growth rate, scheduled to be announced on the 17th, is expected to be around 7%, which is due to the base effect from last year's Shanghai lockdown and other impacts.

In particular, as the pace of domestic demand recovery slows in China, the country is on the brink of negative inflation. The consumer price index (CPI) inflation rate in June was 0.0% year-on-year, falling short of both the previous month's figure (0.2%) and the forecast (0.2%). China's CPI inflation rate has remained in the 0% range for four consecutive months following March (0.7%), April (0.1%), and May (0.2%). The producer price index (PPI) inflation rate recorded a year-on-year decline of 5.4%, the lowest level since January 2016. It fell below both the previous month's figure (-4.6%) and the forecast (-5.0%), marking six consecutive months of negative growth.

[Image source=Yonhap News]

Repeated Calls for 'Opening Up' and Encouragement of the Private Sector
But Challenges Persist Amid Prolonged Uncertainty

The authorities are emphasizing 'opening up' and are actively promoting private sector-led economic recovery and attracting foreign investors.

Chinese President Xi Jinping presided over the second meeting of the Central Committee for Deepening Overall Reform on the 11th, where he stated, "We must focus on deepening opening-up and reform in key areas of global exchange and cooperation such as investment, trade, finance, and innovation." He urged raising the level of external openness, emphasizing, "We need to improve the top-level design of a new system for a higher-level open economy, deepen institutional reforms in trade and investment to expand market access for foreign investors in China, and strive to optimize the business environment."

Prior to this, Premier Li Qiang gathered representatives from platform companies that had been subject to high-intensity regulations, encouraging them. On the 12th, Premier Li held a roundtable meeting with representatives from platform companies such as Meituan, a delivery and ride-hailing application, Douyin, a video-sharing site, and Alibaba Cloud, a cloud computing company.

He said, "In the journey to comprehensively build a socialist modern country, the platform economy holds great potential," adding, "I hope the majority of companies will cultivate strong confidence and internal strength, continue to promote innovation and breakthroughs, and provide more support for the development of the real economy." He also emphasized, "The government will create a market environment for fair competition, improve policies such as investment access and security assessments for new technologies and new businesses, and strive to improve the regulatory system to be transparent and predictable, while reducing compliance and operational costs for enterprises."

However, it is difficult for market sentiment to improve in the short term due to these moves. Alicia Garcia Herrero, Chief Economist for Asia-Pacific at French investment bank Natixis, pointed out, "Confidence in the private sector has not been restored," citing "weak domestic demand, strengthened national security regulations, and export controls on China by the United States and the European Union" as major issues.

Tian Xuan, a professor at Tsinghua University, recently stated in the China Securities Journal, "The government must formalize red lines so that companies can operate with peace of mind," emphasizing, "What is most lacking in the private economy right now is confidence among entrepreneurs."

This content was produced with the assistance of AI translation services.