The BHP Group Ltd (ASX: BHP) share price is down 0.2% in afternoon trade on Monday.
Shares in the S&P/ASX 200 Index (ASX: XJO) mining giant closed on Friday trading for $43.69. At the time of writing, shares are swapping hands for $43.62.
The ASX 200 is also down 0.2% at this time.
With the iron price holding up at just under US$107 per tonne, is the BHP share price facing headwinds from investor jitters over the outlook for China's economy?
What's happening in China?
The Chinese economy, as you're likely aware, has failed to live up to growth expectations following the nation's reopening from its lengthy pandemic-era lockdowns.
China's steel-hungry property markets have been particularly sluggish. And a growing raft of debt issues among major Chinese property developers could potentially pressure iron ore prices – and by connection the BHP share price – in the months ahead.
Country Garden, China's largest private property developer and sixth-largest builder overall, counts among the latest casualties. The company, which is building 3,000 housing projects across China, is on the brink of defaulting after it missed two bond payments earlier this month.
The Chinese government, which for many years boasted of blistering GDP growth in the 8% to 9% range, is now targeting 5% growth. But with the government hesitant to open the stimulus taps, even that more tepid level is at risk.
According to a note from Goldman Sachs (courtesy of The Australian Financial Review):
Our baseline expectation remains a modest improvement in sequential growth from the second quarter to the second half given increased policy support and a reduced drag from inventory destocking.
The broker is forecasting two additional 0.25% cuts to the reserve requirement ratio for Chinese banks alongside one more 0.10% rate cut. Goldman also expects "intensified property easing in top-tier cities".
In what could drag on the BHP share price, however, the broker noted that "the overall picture of sluggish demand remains intact".
According to Goldman's analysts, "Even with these increased policy offsets, risks are skewed to the downside to our full-year GDP growth forecast of 5.4% given the ongoing property downturn."
And Goldman Sachs is not alone in expressing downside risk concerns.
Morgan Stanley counts among the growing list of firms that don't believe China will achieve its 5% growth target this year.
And longer-term, global investors may have to come to terms with GDP growth in the Middle Kingdom of only 3.5%.
According to Tom Orlik, Bloomberg's chief economist:
The sharper downturn in the property sector, challenges in reigniting animal spirits among entrepreneurs and a deepening rift in relations with the US mean expectations on growth have been revised down.
The old downside scenario has now become the base case — with expectations that by 2030 annual growth will have slowed to around 3.5%.
BHP share price snapshot
The BHP share price is up 6% over the past 12 months.
