'Time is running out' for China to hit its growth targets, economist says

• August data shows China's industrial production slowed to 4.5% year-over-year, from 5.1% in July.
• With no strong growth stimulus, it's unlikely China reaches its 5% GDP target, economist Yingrui Wang says.
• Wang warns that China could slip into a "yawning demand-deficient deflation trap" going into 2025.

With new weak economic data and no clear sign of a stronger growth stimulus, China most likely won't reach its growth targets by year-end, AXA Investment Managers economist Yingrui Wang says.

"Time is running out for China this year to achieve its growth targets, but also to avoid a more protracted slowdown," Wang wrote in a Monday note.

Wang points to a slowdown in industrial production, a strong spot in the economy up until a few months ago, and ongoing weak consumer sentiment.

August data shows China's industrial production slowed to 4.5% year-over-year from 5.1% in July. The data, released over the weekend, marks a continuation of slowing industrial growth since peaking at 6.7% in April.

Fixed asset investment also declined, falling to 2% growth in August.

Previously, non-property fixed asset investment had been the "backbone of economic growth" ever since the government introduced policies to stimulate supply growth last year, Wang said.

That seems to be changing as investment has slowed in recent months amid delayed bond issuance, strained local government balance sheets and debt burdens, and the "lifetime accountability" of local governors, who may be more hesitant to engage in radical investment, Wang said.

With production losing momentum, its positive impact now pales in comparison to the swell of problems arising from China's troubled property sector, Wang said.

"While the manufacturing sector has shown resilience in both investment and production growth, its strength is insufficient to offset the drag from other sectors, particularly the property sector," Wang said.

The country's ailing property sector has struggled to climb out of its slump, faced with slowing property sales and high vacancy rates for existing housing supply.

Domestic consumer demand, meanwhile, remains weak. Retail sales slowed to 2.1% year-over-year in August, down from 2.7% in July. Wang said continued consumer weakness "is pushing the economy toward the brink of deflation, with both headline CPI and core inflation remaining very weak."

Even as Chinese government authorities continue to emphasize the country's "about 5%" GDP growth goal for the year, the new data makes that goal look increasingly unlikely to be achieved, Wang said.

"The August data release has reinforced the pessimistic outlook for China's economy, yet there is still no clear sign of stronger stimulus," Wang said.

Both Bank of America and Citigroup lowered their GDP forecasts following the new data, down to 4.8% and 4.7%, respectively.

If growth continues to slow, it could have structural impacts, too.

"More broadly the issue is becoming more structural with the risks of China slipping into a yawning demand-deficient deflation trap growing as we move into 2025," Wang said.