The disappointing figures follow a string of below-par readings in recent months indicating the post-Covid recovery was already going off the rails and highlighting the tough work authorities face reviving momentum.
The National Statistics Bureau said the world's number two economy grew 6.3 percent on-year in April-June, faster than the previous three months but much weaker than the 7.1 percent predicted in an AFP survey of analysts.
That came despite having a very low base of comparison with last year when the country was hit by a series of Covid lockdowns in major cities.
In quarter-on-quarter terms -- considered a more realistic basis for comparison -- growth came in at 0.8 percent, well down from the 2.2 percent seen in January-March, the first full period after the removal of zero-Covid restrictions.
NBS spokesman Fu Linghui said in a statement that the economy "showed a good momentum of recovery".
"Market demand gradually recovered, production supply continued to increase, employment and price were generally stable, and residents income grew steadily," he added.
But Fu admitted at a Monday news conference the Chinese economy faces "a complex and difficult international situation, and arduous tasks for reform, development and ensuring stability".
Additional data reinforced the view that the post-pandemic recovery was petering out.
Retail sales, a key gauge of consumption, edged up 3.1 percent in June from a year earlier, according to the NBS, slowing from the 12.7 percent rise in May.
It was in line with expectations of analysts polled by Bloomberg, but signalled shaky consumer confidence.
- 'Serious deterioration' -
"Consumption remains a driving force for the economic recovery," Erin Xin, Greater China Economist at HSBC, told AFP.
"In some areas, particularly in services, the revival has been particularly strong," she said, adding that consumption levels had not recovered to pre-pandemic levels.
Unemployment among Chinese youth also jumped to a record 21.3 percent in June, up from 20.8 percent in May, the NBS said.
The general unemployment figure stayed at 5.2 percent, but only takes into account the big cities.
The run of poor readings over recent months has ramped up calls for officials to unveil support measures.
While the People's Bank of China last month cut interest rates and authorities pledged to help the troubled property sector, there has been very little concrete action out of Beijing.
Low demand means companies are hesitating to hire, taking a "wait-and-see" attitude before expanding operations, said Harry Murphy Cruise, an economist at ratings agency Moody's.
"Unfortunately... a revival in business activity is needed for broader demand to lift," he added.
"That stalemate is keeping business activity weak."
And given the slow growth, some analysts now expect support measures to be unveiled at a quarterly meeting of China's Politburo -- the top-decision making body of the ruling Communist Party -- this month.
"Given the disappointing performance in the second quarter, the quarterly Politburo meeting at the end of July would set a more pro-growth policy tone," analysts at Macquarie wrote in a note.
"Indeed, we expect more easing measures to be announced in the weeks ahead, not like a bazooka but in batches," they added.
Last year, GDP expanded 3.0 percent, well below the official target of 5.5 percent.
And China is aiming for about five percent growth this year, one of the lowest targets set by the Asian giant in decades and one that Premier Li Qiang has warned will not be easy to achieve.
We must "be psychologically prepared to see other signs of serious deterioration in the Chinese economy", analysts from US-based firm SinoInsider said.
"We expect more (targeted) easing measures in coming months, with a focus on fiscal, housing and consumption, although the magnitude of stimulus should be smaller than in previous easing cycles," analysts from Goldman Sachs said in a note.
Storm clouds loom large over China's economy
Beijing (AFP) July 17, 2023 -
China's lower-than-expected growth in the second quarter comes as the world's second largest economy is hit by sluggish consumption, a real estate sector in crisis and worries over deflation.
Here is a look at the main storm clouds over China's economy:
- Sluggish consumption -
For almost three years Beijing's strict zero-Covid policies meant repeated lockdowns, the fear of being arbitrarily quarantined and other draconian health measures that dragged down consumer spending.
When the restrictions were lifted at the end of 2022, millions flocked to restaurants, shopping malls and on long-awaited holidays.
But that optimism hasn't lasted, with the recovery running out of steam and the labour market under pressure -- more than one in five young people is unemployed.
"Companies are reluctant to hire due to soft consumer demand, and consumers are reluctant to spend" because of the economic situation, economist Larry Hu, of the investment bank Macquarie, told AFP.
"Such a self-fulfilled downward spiral bears some resemblance to Japan's 'lost decades'," he warned, referring to years of stagnation in what is now the world's third largest economy.
- Real estate in crisis -
Bricks and mortar are a pillar of the economy in a country where property has long been seen as a safe bet for middle class Chinese seeking to grow their wealth.
That demand sent property prices soaring, while developers expanded at breakneck speed thanks to generous bank loans.
But as those companies' debts reached unsustainable heights, authorities pushed the brakes in 2020.
Since then, developers' access to credit has been considerably reduced, with the most vulnerable struggling to complete their projects, fuelling a crisis of confidence with potential buyers that is depressing prices.
China's central bank last week decided to extend its support for developers, notably through loan repayment extensions, until the end of 2024. That came after officials cut interest rates last month.
But these measures are "insufficient" to "save" the sector, according to Nomura bank analyst Ting Lu.
- Deflation looms -
For months prices in China have been virtually flat, but while on paper this may seem like a good thing for purchasing power, a drop into deflation would pose a long-term threat.
Instead of spending, consumers postpone purchases in the hope of lower prices.
And in the absence of demand, companies cut back on production, freeze hiring or lay off staff and agree to further price cuts to clear their inventories, which weighs on profitability as their costs remain the same.
- Trade under threat -
China, long described as "the workshop of the world", remains highly dependent on exports -- making it vulnerable to vicissitudes in the global economy.
The threat of recession in the United States and Europe, combined with galloping inflation, is weakening international demand for Chinese products.
In June, exports fell for the second month in a row.
- Geopolitical tensions -
Tensions between China and the United States have also hurt the economic outlook.
Washington officials are working to "de-risk" their economy from China -- including tightening restrictions on semiconductor exports in the name of national security and pressuring allies to do the same.
Customs spokesman Lyu Daliang last week blamed outside forces having a "direct impact" on Chinese trade.
"The risks linked to unilateralism, protectionism, and geopolitics are on the rise," he said in a statement accompanying disappointing export figures.
- Indebted local authorities -
Also dragging on the economy is the dire finances of some local authorities after three years of astronomical spending to combat Covid and a real estate crisis that has deprived them of a major source of property income.
These difficulties, exacerbated by the economic context, will "become more visible in the second half of the year as China's economic and financial problems increasingly bubble to the surface", according to analysts at SinoInsider, a US-based firm.
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