China cuts interest rates on key lending facilities

China’s central bank has surprised markets with key lending rates cuts to revive demand.

The country’s economy unexpectedly slowed in July, data showed on Monday, with factory and retail activity squeezed by Beijing’s zero-COVID policy and a property crisis.

Industrial output grew 3.8% in July from a year earlier, after expanding 3.9% in June, data from the Chinese National Bureau of Statistics (NBS) showed.

Retail sales, which only turned positive in June, rose 2.7% from a year ago, greatly missing analysts’ forecast for 5.0% growth and below the 3.1% growth seen in June.

In order to prop up growth, the central bank on Monday unexpectedly lowered interest rates on key lending facilities for the second time this year.

New yuan loans tumbled by more than expected in July as companies and consumers stayed wary of taking on debt, data showed on Friday.

The world’s second-biggest economy narrowly escaped a contraction in the June quarter, hobbled by the lockdown of the commercial hub of Shanghai, a deepening downturn in the property market and persistently soft consumer spending.

However, risks to growth abound as many Chinese cities, including manufacturing hubs and popular tourist spots, imposed lockdown measures in July after fresh outbreaks of the more transmissible Omicron variant were found.

Meanwhile, the property sector, which has been further rocked by a mortgage boycott that weighed on buyers’ sentiment, deteriorated in July. Property investment tumbled 12.3% in July, the fastest rate this year, while the drop in new sales deepened to 28.9%.

Chinese policymakers are trying to balance shoring up a fragile recovery and eradicating emerging COVID clusters with the economy expected to miss its official growth target this year – set at around 5.5% – for the first time since 2015.

In addition, fiixed asset investment, which Beijing had hoped would drive growth in the second half as exports soften, grew 5.7% in the first seven months of the year from the same period a year earlier, versus a forecast 6.2% rise and down from a 6.1% jump in January-June.

Also, the employment situation remained fragile. The nationwide survey-based jobless rate eased slightly to 5.4% in July from 5.5% in June, although youth unemployment stayed stubbornly high, reaching a record 19.9% in July.

Reuters/Hauwa Abu