China's economy faces local debt and real estate problems.

The recovery of the Chinese economy from the constraints of the Covid-19 pandemic has sparked a wave of optimism about how consumers' accumulated cash will be utilized and lead to an economic take-off. Positive signals were seen early on, with the National Bureau of Statistics (NBS) reporting a 3.5% increase in consumer spending in January and February 2023, a rebound from the negative numbers recorded in the last quarter of 2022. The numbers continue to rise steadily to 18.4% in April 2023, but are just below the expected boom in consumer spending.

There are signs of simmering problems. In June 2023, the People's Bank of China (PBoC) took steps to''stimulate the economy by announcing a 7-day repo rate cut from 2% to 1.9% to increase liquidity. This is expected to be consistently accompanied by further monetary policy easing and stimulus measures. A target of 5% GDP growth in 2023 is set and additional measures may be required to achieve this target.

Although retail sales are starting to recover, it cannot be called a recovery, said Jinny Yang, managing director, chief economist at China Industrial and Commercial Bank ICBC. Further support and stimulus from the government will be needed for a full-fledged recovery.

Structural changes are also having an impact.''The slow growth of the Chinese economy is causing concern among overseas investors, who expect growth rates to recover close to post-pandemic levels. Politics seems more important than the economy, which is controversial. Nevertheless, experts believe China's GDP growth will be limited to 4-5% in the long term.

There are, however, a number of problematic issues.

The Chinese economy is also facing challenges in the real estate sector. The level of real estate prices in May 2023 increased by 0.1% compared to April 2022. Real estate prices decreased in several cities. Problems in the real estate sector have a negative impact on consumer confidence and spending. The authorities are taking measures to support the real estate sector, but significant restructuring may be required at the local government and real estate market levels.

The Chinese economy as a whole faces many challenges and is striving to address them while maintaining its commitment to strong economic growth. While the government can intervene to support individual sectors, it is important to take significant action''on reform at the local level to ensure stability and control.