(Aug 18): China’s economy showed across-the-board weakness in July and growth likely slipped further below the government’s annual target, sparking a call from Premier Li Qiang on officials to ramp up supportive measures.

“We must anchor efforts to development goals, give full play to the effectiveness of existing policies, and promptly formulate practical and effective incremental policies,” Li said at a Monday meeting of China’s cabinet, as he urged officials to “strive to achieve” the annual economic and social development targets.

The speech was released by the official Xinhua News Agency after government data published earlier in the day showed China’s industrial output, consumption and investment all softened more than expected in July. Pressure on policymakers to step up stimulus is on the rise, given many economists estimate growth of gross domestic product has slipped further below Beijing’s annual target of 4.5%-5% after reaching only 4.3% in the second quarter.

Li — China’s No. 2 official, after President Xi Jinping — pledged to accelerate China’s shift to new growth drivers. He said the government will focus on major projects, such as the Six Networks, and sectors with expansive supply chains and greater economic weight to unleash domestic demand. The deployment of government funding will be expedited, and more support will be given to investment in emerging industries, new types of infrastructure and consumption upgrading, the premier added.

The July data suggested China’s growth is likely running below the lower end of the official annual target range, according to economists from institutions such as BNP Paribas SA, Macquarie Group and Pantheon Macroeconomics. 

Goldman Sachs Group Inc and Citigroup Inc, meanwhile, have warned their forecasts for a pickup in GDP expansion in the third quarter could be in doubt.

Still, most analysts aren’t expecting an immediate top-up of fresh stimulus, in part because officials should have had a clear understanding of where the economy stands when the powerful Politburo met in late July. During its huddle to set economic policy for the second half of the year, the Communist Party’s decision-making body stopped short of announcing major new measures. 

The government therefore will likely prioritize a faster roll-out of existing policies while monitoring the economy in the coming months, calibrating any extra stimulus to keep the annual growth goal within reach, economists said.

“We continue to expect the government to accelerate the pace of bond issuance and proceeds spending in coming months, speed up implementation of the new policy-based financial instrument, and keep the door open to additional easing later this year if growth slows further and the full-year growth target of ‘4.5-5.0%’ comes under pressure,” Goldman economist Lisheng Wang wrote in a Monday note. 

The new policy-based financial instrument refers to 800 billion yuan planned for this year in quasi-fiscal policy bank financing to fund investment.

Adverse weather conditions could be another factor delaying new pro-growth policies, according to a report by Citigroup economists led by Xiangrong Yu. Heavy rains and strong winds were among the reasons for a deepening contraction in fixed-asset investment last month.

Macquarie economists including Larry Hu expect Beijing to stick to what they called its “Just Enough” rule, “doing just enough to achieve the growth target, but no more.”

The resilience in foreign shipments on the back of the global AI supercycle will allow Chinese authorities to keep stimulus measured, they said. “Domestic demand is likely to remain weak if AI-led export strength continues.”

Uploaded by Liza Shireen Koshy