“After a sugar injection in the opening months of 2023, the pandemic hangover is plaguing China’s recovery.”

National Bureau of Statistics (NBS) spokesman Fu Linghui attempted to play up the prospects, saying that China’s economy is returning to the normal track and that its growth is still the best of the major economies this year.

In the first half of the year, China’s GDP grew by 5.5 per cent year on year, with consumption the driving force behind the recovery, Fu added.

“Certainly, this is a consumption-induced slowdown, which calls for policy support on the demand side,” said Zhou Hao, chief economist at Guotai Junan International, who said the risks may trigger a wave of growth outlook downgrades.

Zhou added that the activity data for June carried some positive notes, as industrial production grew by 4.4 per cent, year on year, up from an increase of 3.5 per cent in May.

The data showed that the output from the chips-related manufacturing industry increased by 30.9 per cent, year on year, in the first half, while aerospace aluminium output increased by 23.3 per cent, as Beijing is looking to boost hi-tech sectors as new engines to fuel long-term economic growth.

But it is facing a daunting challenge to address deep-rooted questions that have slowed the recovery pace and resilience – lack of confidence and weak expectations.

As the mercury rises, will climate change impact energy, trade and agriculture?

Fixed-asset investment – a conventional tool for Beijing to drive up growth – grew by 3.8 per cent in the first six months compared to the same time last year, down from a rise of 4 per cent in the January-May period.

Meanwhile, real estate investment, which often accounts for one third of the total investment, fell by 7.9 per cent in the first half, contracting further from a 7.2 per cent drop in the first five months.

Wang Jun, a director at the China Chief Economists Forum, said there are less expectations for policy stimulus as the full-year growth target can be met due to last year’s low comparison base, but worries remain high over the private sector and the property market.

“Support for private businesses and the property market should increase. Otherwise, it will continue to drag the headline growth,” he said.

Meanwhile, the jobless rate for the 16-24 age group hit a new high of 21.3 per cent in June, up from 20.8 per cent in May.

The overall urban surveyed jobless rate, though, remained unchanged at 5.2 per cent last month.

“The biggest problem is the high jobless rate for the youth,” Ding Shuang, chief Greater China economist at Standard Chartered Bank.

NBS spokesman Fu conceded that the youth unemployment rate may increase further next month due to a record number of college graduates this year, while a structural problem for the employment of graduates, or a mismatch between jobs and skills, has persisted.

“As young graduates gradually land on jobs during the graduation season, the youth unemployment rate is expected to decline after August,” Fu added.

Ding said China can still achieve its annual growth target as positive signs have increased in May and June.

“As the economic target is within reach, any speculation on massive stimulus from Beijing seems unjustifiable,” Ding added.

Economists from Goldman Sachs said Beijing will maintain an easing bias with a focus on fiscal, housing and consumption at the upcoming Politburo meeting, which will set the long-term policy direction.

“However, we believe the magnitude of policy easing this time around should be smaller than in previous easing cycles, given the low growth target set by the government for this year, much less policy room due to poorer fiscal conditions and policymakers’ emphasis on the ‘high quality growth’ model,” they said on Monday.

Zhao Xijun, a finance professor at Renmin University in Beijing, said policy focus in the second half should ensure current fiscal and monetary policies are put in place and are effective.

“No matter whether it is the funds released by fiscal policies or the banking system, they need to play maximal effects,” Zhao said.

“More policies to address the weak links such as small business and new ones to stimulate consumption are likely to be unveiled.”

Liu Yuanchun, a senior government adviser and the president of the Shanghai University of Finance and Economics, said the slower-than expected recovery in the first half was mainly because cash-strapped local governments have suppressed fiscal expenditures, which made it difficult to boost domestic demand.

Liu told a seminar during the China Macroeconomy Forum earlier this month that “prudent monetary policy is not prudent enough”, and that the injected liquidity has not been passed from state-owned enterprises to smaller firms, which face higher financial costs.

“We must correct distortions in interest rates, rather than just keep lowering interest rates,” he said.

Additional reporting by Mia Nulimaimaiti and Luna Sun