Why China’s economy needs a plan B

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Good evening.

China’s economy — the second largest in the world — has lost steam in the second quarter, with gross domestic product expanding 0.8 per cent against the 2.2 per cent quarter-on-quarter expansion over the January-March period.

The country has also seen an increase in youth unemployment. In May, 20.8 per cent of 16 to 24-year-olds were unemployed, the largest proportion since the data series started in 2018.

Jobless Chinese graduates, unenthused by work opportunities, are getting little sympathy from their head of state, who has previously urged them to “roll up their sleeves” and try manual work.

But President Xi Jinping, who began an unprecedented third term in office in March, has his own problems. Namely, does his administration need an economic plan B?

Property and trade are two indicators that have been flashing red. Demand for China’s exports has fallen this year and, in June, they suffered their biggest year-on-year decline since the pandemic started. With high interest rates in the west weighing on consumer purchases of Chinese-made goods, exports in June fell 8.3 per cent compared with a year earlier, according to the National Bureau of Statistics.

Moreover, the property sector is experiencing downturn. According to a sample of 25 cities, prices of existing homes declined by 1.4 per cent in June compared with May, accelerating falls in the previous months.

In the wake these setbacks, Xi and his top policymakers are practising something they call dingli, which means, “maintaining strategic focus”. Economists interpret this as continuing to reduce debt, especially in the overleveraged property sector while pursuing a policy of tech self-sufficiency and global leadership.

Though top US officials have signalled scope for a more constructive relationship with Beijing, the Biden administration has dimmed hopes of an immediate easing of tariffs against China.

Yesterday, US Treasury secretary Janet Yellen stressed that while it would be useful to identify ways to de-escalate tensions over time, it is “premature” to relax trade restrictions.

Meanwhile, observers of China’s own foreign policy have been mystified by the three-week absence of Chinese foreign minister, Qin Gang, prompting growing speculation about his whereabouts.

In China, disappearances of senior officials, celebrities and businesspeople are commonplace. It often later emerges that they have become embroiled in investigations or other controversies.

Need to know: UK and Europe economy

EU economy chief Paolo Gentiloni warned the bloc would need to step up its response to the US Inflation Reduction Act, as President Joe Biden’s plan to finance the industrial green transition looks to be bigger than expected.

The EU hopes to reboot relations with Latin America at a summit with the region’s presidents this week. Delays to trade deals and a rift over the Ukraine war have underlined their political differences after eight years without a top-level meeting.

UK Prime Minister Rishi Sunak wants to tighten regulatory controls on universities offering courses with poor employment prospects and high student dropout rates. This aligns with a wider ambition to crack down on “rip-off degree courses”.

Need to know: Global economy

Argentina’s economy minister Sergio Massa is running for president this October while struggling to address runaway inflation and negotiate with the IMF as the country stands on the brink of default.

Russia has pulled out of a UN-brokered deal to export Ukrainian grain across the Black Sea, putting tens of millions of tonnes of the food export at risk. Russia has complained that western sanctions were holding up a parallel agreement around payments, insurance and agricultural shipping. Dmitry Peskov, president Vladimir Putin’s spokesman, said Russia would resume its participation in the deal “as soon as the relevant agreements are fulfilled”.

The transatlantic inflation gap looks set to hit its highest level in decades. The gulf between US and UK price pressures is likely to widen to levels not seen since the late 1970s.

Need to know: business

Multinationals are racing to decouple China data after Beijing’s move to expand its anti-espionage rules and data regulation.

Trade experts say new EU regulations that diverge from UK equivalents mean British companies must to start preparing for “Brexit 2.0”. “As the UK stays static, you’re having to treat the EU and the UK as two completely different markets from a regulatory perspective,” said Fergus McReynolds at industry body Make UK.

It’s dangerous to assume UK banks are profiteering, writes FT deputy editor Patrick Jenkins. “Undermining banks’ margins arguably erodes their financial strength, weakens the City and thus the industry’s ability to fuel the economy,” he says.

The World of Work

Of all the management techniques, few are as powerful as listening to your staff and asking follow-up questions. People are also more likely to bring looming problems to your attention if they know they are being heard.

In a bid to increase the number of female CEOs in the US and UK, companies need to broaden their search beyond traditionally male-dominated jobs like finance and operational roles, or step up efforts to appoint women to these positions. The FT analyses the pipeline of potential future female bosses and the path to greater equality.

Toxic workplaces not only cause stress and burnout but can also increase the risks of serious illness. Organisational change consultants could be the answer to a dysfunctional working environment.

Working through the summer poses the constant risk of being asked to fill in for absent colleagues and do work that equally absent bosses fail to notice. Don’t be afraid to say no, writes columnist Pilita Clark.

Some good news

A new drug developed by Eli Lilly has been shown to slow Alzheimer’s progression. The full findings of the phase 3 clinical study showed that the new drug donanemab significantly slowed memory loss and cognitive decline. Dementia experts have hailed this as a “watershed moment”.