(July 15): China’s economy grew at the worst pace in five quarters as efforts to boost consumer spending fell short, piling pressure on Beijing to lift confidence in a twice-a-decade policy meeting this week.

Gross domestic product expanded 4.7% in the second quarter from the same period a year earlier, undershooting economists’ median forecast of 5.1%. Retail sales rose at the slowest pace since December 2022, showing a flurry of government efforts to juice confidence have done little to reinvigorate the Chinese consumer.

“The government will need to mull greater policy supports to deliver its annual growth target of around 5% after the disappointing second-quarter data,” said Xiaojia Zhi, an economist at Credit Agricole CIB in Hong Kong. “The increasing likelihood of Trump 2.0 also means that China will need additional policy efforts to boost its domestic demand in a timely manner, as external demand downside risks loom.”

President Xi Jinping is betting on manufacturing and high-tech sectors to propel China’s growth in the post-pandemic era. That strategy already faces uncertainty as Beijing’s trade partners erect new barriers against Chinese goods, with former president Donald Trump threatening more curbs if re-elected. The second-quarter data shows policymakers will also need to focus efforts on lifting domestic spending to keep the world’s No 2 economy on track.

Chinese stocks in Hong Kong extended their losses after the disappointing data, with the Hang Seng China Enterprises Index down as much as 1.7%. The People’s Bank of China earlier on Monday held its benchmark rate steady, amid concerns about capital flight, pressure on bank profits and a need to defend the yuan.

The National Bureau of Statistics (NBS) said in a statement accompanying the data that the growth slowdown in the second quarter was due to short-term factors such as extreme weather and rain downpours and floods. It also reflected the economy is facing more difficulties and challenges, with the problems of insufficient domestic demand and clogged domestic circulation remaining, the NBS said.

“The root of the growth slowdown is that the property sector as a pillar of the economy is still rapidly shrinking, and home prices are slumping,” said Lu Ting, the chief China economist of Nomura Holdings Inc. “To change the fast slowdown in consumption growth, China needs to stabilise the property industry, which accounts for about 70% of household wealth.”

New-home prices in major Chinese cities fell for the 13th straight month in June, adding to evidence that a rescue package unveiled in May has done little to boost sentiment.

The collapse in real estate is hurting consumer confidence. Retail sales rose at the slowest pace since 2022, underscoring citizens’ reluctance to spend despite a government programme to subsidise and encourage the replacement of old vehicles and home appliances.

Underscoring that point, China marked its fifth period of deflation in the second quarter, extending the longest slide of economy-wide prices since 1999.

“Amongst all monthly figures released today (Monday), the highlight is weak retail sales,” said Raymond Yeung, the chief economist for Greater China at Australia and New Zealand Banking Group. “Household consumption remains very weak. The ‘replacement’ schemes fail to lift spending. With employers slashing salary and high youth unemployment, households will still be cautious going forward.”

Retail sales of cars fell 6.2% year-on-year in June, the steepest decline in more than a year, as a price war between Chinese automakers left consumers delaying purchases for lower prices. Home appliances and audio-video equipment decreased 7.6% last month, the worst since 2022, and building and decoration materials slid 4.4%.

“The ability and confidence for households to consume still need to be improved,” said Zhang Yi, an NBS official in a separate statement commenting on residents income and spending in the first half. “We should strengthen measures to increase residents’ income.”

The broad slowdown reflected in the figures — the first set of quarterly indicators free of distortions by the Covid-19 pandemic — comes just as Xi began the Third Plenum meeting to set major economic and political policies for the coming years.

In a sign of the conclave’s importance, officials skipped a monthly press conference to answer questions on the data, opting to post the figures online along with a separate statement with comments on the economy. Beijing last disrupted the usual format of a major data release in October 2022, when Xi held a party congress that saw him securing a precedent-defying third term as leader.

Economists have called on this week’s conclave to address the property downturn, boost technology self-sufficiency, and relieve local fiscal strains during the four-day gathering. The party’s most senior 24 officials including Xi are set to sit down later this month for a Politburo meeting to discuss specific economic measures.

“While the case for reform is high, it is unlikely to be a particularly exciting affair,” Harry Murphy Cruise, an economist at Moody’s Analytics, said of the Third Plenum. “Big policy pivots can be taken as an admission of failure and a sure-fire way to lose face.”