When China suddenly lifted its lockdown and other Covid measures last December, officials in Beijing and many investors expected the economy to revive.

It didn’t work out that way.

Investment in China stagnated this spring after a flurry of activity at the end of winter. Exports are shrinking. Fewer and fewer new housing projects are being launched. Prices are falling. More than one in five young people is unemployed.

China has tried many fixes over the past few years as its economy has been in decline, such as borrowing heavily to pay for roads and railways. And it spent huge sums on testing and quarantines during the pandemic. More stimulus spending now, with borrowed money, would spur a burst of activity, but would present a difficult choice for policymakers already worried about the debt pile-up.

“The authorities risk being behind the stimulus curve, but there is no quick fix,” said Louise Loo, an economist specializing in China at the Singapore office of Oxford Economics.

China needs to fix its economy after shutting itself off from the world for nearly three years to fight Covid, a decision that has prompted many companies to start shifting their supply chains elsewhere. Xi Jinping, Chinese leader, they met on Monday with United States Secretary of State Antony J. Blinken in an effort by both nations to reduce diplomatic tensions and clear the way for high-level economic talks in the coming weeks. Such discussions could slow the recent proliferation of sanctions and countermeasures.

China’s stalling economic recovery saw strong growth in only a few spending categories, such as travel and dining out. And they are up from extremely low levels in the spring of 2022, when a two-month quarantine in Shanghai disrupted economic activity in large swaths of central China.

The economy has been particularly weak in recent weeks.

“From April to May until now, the economy has experienced significant unexpected changes, to the point where some people believe that the initial judgments may have been too optimistic,” Yin Yanlin, former deputy director of the Chinese Communist Party’s Supreme Economic Policy Commission. he said in a speech at an academic conference on Saturday.

Chinese government officials are dropping hints that an economic stimulus plan may be imminent.

“In response to changes in the economic situation, stronger measures must be taken to increase the momentum of development, optimize the economic structure and promote continuous economic recovery,” the country’s State Council, or Cabinet, said. meeting on Friday led by Li Qiang, the country’s new premier.

China’s economic weakness brings both benefits and dangers to the global economy. Consumer and producer prices in China have fallen over the past four months, holding back inflation in the West by pushing down the cost of imports from China.

However, weak demand in China may worsen the global slowdown. Europe already plunged into a mild recession earlier this year. A rapid increase in interest rates in the United States has prompted some investors to bet on a recession later this year there as well.

Beijing has already taken some steps to revive economic growth. Tax breaks are introduced for small businesses. Interest rates on bank deposits were lowered to encourage households to spend more money instead of saving it. The latest government action is expected on Tuesday, when the state-controlled banking system is likely to slightly cut its benchmark interest rates for business loans and home mortgages.

But many economists inside and outside China are concerned about the effectiveness of the new measures.

Consumers are hoarding cash and investors are wary of putting money into Chinese companies. Private investment has actually declined so far this year compared to 2022. Housing remains in crisis, with developers borrowing more to pay off existing debt. to complete existing projects, even though China is already suffering from a housing glut.

China’s housing market is at the center of its problems. Construction accounted for up to a quarter of China’s economic output. But would-be homeowners were put off because developers defaulted on their debts and failed to complete apartments that buyers had paid for in advance.

Housing construction fell nearly 23 percent in the first five months of the year compared to the same months last year. This suggests that the real estate sector will continue to decline in the coming months.

Chen Leiqian, a 27-year-old marketer from Beijing, started looking for an apartment with her boyfriend in 2021 after five years of dating. But then they decided to stay in a rented apartment when they got married.

“Housing prices are falling across the country and the economy is very bad – there are just too many unstable elements,” Ms Chen said.

Two-thirds of Ms Chen’s co-workers in her department at the online tutoring company were fired after China cracked down on the for-profit private education industry in 2021. She also had a boyfriend who, after losing his job in the tech sector, could no longer pay his mortgage and lost his house in foreclosure.

The wariness of middle-class families like Ms. Chen’s may pose the biggest dilemma for policymakers as they search for an effective formula for the next round of economic stimulus.

“You can throw money at people, but if they’re not sure, they won’t spend,” said Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis, a French bank.

Households are not alone in struggling to service their debts – as are local governments, which have limited their ability to increase spending on infrastructure.

The government fears the start of another credit crunch, as seen in 2009, during the global financial meltdown, and in 2016, after China’s stock market plunged the previous year.

Although a slumping real estate sector has hurt demand in China, exports have stagnated this year and actually fell in May. The weakness in normally strong Chinese exports is particularly notable because Beijing has allowed its currency, the renminbi, to lose about 7 percent of its value against the dollar since mid-January. A weaker renminbi makes Chinese exports more competitive in foreign markets.

More exports help create jobs and could offset an otherwise sluggish domestic economy. But it is not clear how much China will be able to count on exports, as some of China’s biggest trading partners have shifted some purchases to other countries in Asia.

In the United States, the Trump administration has imposed tariffs on a wide range of Chinese manufactured goods, making it more expensive for American companies to buy from China. Then President Biden persuaded Congress last year to authorize broad subsidies for American manufacturing in categories such as electric cars and solar panels. China’s exports to the United States fell 18.2 percent last month compared to May last year.

Now, as China considers how to boost its economy, it must contend with a loss of consumer confidence.

Charles Wang runs a small travel company with eight employees in Zhangjiakou, northern China. His business has almost fully recovered from the pandemic, but he has no plans to invest in expansion.

“Our economy is actually going down, and everyone doesn’t have as much time and willingness to spend,” Mr. Wang said. “It’s because people just don’t want to spend money – everyone is afraid again, even the rich.”

Li You contributed research.

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