China’s growth target of around 5% for this year is increasingly in jeopardy without additional stimulus measures, according to economists. The country recently suspended the release of data on youth unemployment, which had reached record levels, and other data for July indicated a broader slowdown exacerbated by a slump in the property market. “Prolonged weakness in property construction will add to destocking pressures in the industrial space and depress consumption demand as well,” warned Tao Wang, head of Asia economics and chief China economist at UBS Investment Bank. Wang emphasized that without intervention, economic momentum could remain subdued, leading to the possibility of missing the growth target. China is the world’s second-largest economy, accounting for nearly 18% of global GDP in 2022.

Leading economists have suggested that Beijing needs to step in as the lender of last resort to assist struggling major developers and financial institutions. They also recommend that Beijing acts as the spender of last resort to stimulate aggregate demand. Nomura’s Chief China Economist Ting Lu and their team expressed concerns about downside risks to their growth forecast and the possibility of missing the 5.0% mark for annual GDP growth this year.

While Beijing has acknowledged economic challenges and implemented some policy support, such as unexpected rate cuts, it will take time for these measures to have an impact. Market confidence remains low, particularly as worrisome headlines continue to emerge. Louise Loo, lead economist at Oxford Economics, highlighted that fears of contagion related to property developers and default risk in the trust industry have heightened concerns and created a higher threshold for effective stimulus.

Analysts anticipate a more substantial policy shift in the fourth quarter when the “Third Plenum,” a top-level meeting, is scheduled to take place. The initial crackdown on real estate developers in 2020 aimed to address the sector’s excessive reliance on growth. Beijing has emphasized its commitment to defusing financial risks and is in the process of reorganizing its financial regulatory bodies. However, weak finances at the local level prevent Beijing from utilizing fiscal policy to support the economy.

Chinese authorities’ efforts to manage risks in the real estate sector and reduce reliance on investment for economic growth indicate a shift in priorities towards national security and technological self-sufficiency. Overseas investors and observers see this apparent inaction as a signal of a broader change in China’s economic agenda. However, Gabriel Wildau, managing director at consulting firm Teneo, believes policymakers will increase housing stimulus in the coming months to improve sales and construction volumes by the end of the year.

Despite China’s ongoing economic challenges, the country has been working on long-term sustainability and transitioning towards consumption-driven growth. Policymakers face the challenge of implementing stimulus measures that prevent a hard landing for the economy while also managing the downward trend in property and investments. As China continues to transition to new growth drivers, emerging strategic sectors such as the green economy, digital economy, advanced manufacturing, and semiconductor manufacturing will play a crucial role.