What happened

Shares of many Chinese stocks fell this week as rate cuts by China's central bank failed to spark a rally and investors grew increasingly concerned that the country's economic rebound is running out of steam.

Shares of online tutoring company TAL Education Group (TAL 3.62%) traded more than 11% lower for the week as of 1:44 p.m. ET Thursday, according to data from S&P Global Market Intelligence. Meanwhile, shares of the online recruitment firm Kanzhun Limited (BZ 3.70%) traded 11.8% lower, while shares of the online real estate platform KE Holdings (BEKE 2.44%) were down 11.4%.

So what

Earlier this week, the People's Bank of China (PBOC) lowered the yield on its one-year prime rate from 3.65% to 3.55% and cut its five-year prime rate from 4.3% to 4.2%. Lower interest rates encourage borrowing activity and the PBOC lowered other interest rates last week.

A person with their head in their hands faces a downward moving stock chart on a laptop screen.

Image source: Getty Images.

The moves come as investors grow worried that China's economic rebound this year is slowing down before it could even really get going. While China's economy did grow 4.5% year over year in the first quarter, investors are worried about data that shows high youth unemployment, slowing manufacturing activity, weaker-than-expected retail sales, and a struggling property market, not to mention growing geopolitical tensions with the U.S.

Investors had hoped that rate cuts would signal stimulus measures from the Chinese government but investors are now less optimistic. Earlier this week, analysts at Goldman Sachs lowered their forecasts for China's economy, predicting the economy would grow 5.4%, down from previous estimates of 6%.

"Policymakers face constraints and the coming policy easing will not be as large and forceful as during the 2008-09, 2015-16, and 2020 cycles," Goldman analyst Hui Shan wrote in a recent research note. "The persistent growth headwinds (property slowdown and confidence deficit in particular) are likely to win the upper hand in the tug of war between weakening growth momentum and increased policy easing."

A big part of the problem has to do with China's ailing housing market. Developers are still paying off debt and there's not a lot of confidence in their ability to finish projects, while private investment is concerned as well. Through May, housing construction in the country is down roughly 23% year over year.

Now what

China's economic tailwinds are deeply in question right now but I still think it's too early to know exactly what the second half of the year holds for the economy or Chinese stocks. Billionaire Ken Griffin, the founder of the large hedge fund Citadel Securities, is still very bullish on China and thinks gross domestic product may come in better than people think.

A big factor will likely be whether or not the government rolls out any stimulus or tries to further support the property sector, which has made up a big chunk of economic growth in the past. While TAL, Kanzhun, and KE Holdings are likely to move with the sector, I tend to prefer other names that I think can perform better on more of an individual basis.