Coldsnap to China’s growth

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Posted on October 18, 2021 at 6:54 amUpdated at 4:45 pm on October 18, 2021

The Chinese economy is in a period of turmoil. After a swift and powerful emergence from the Covid-19-related crisis, the world’s second-largest economy is slowing significantly and faster than analysts expected.

China’s GDP increased 4.9% year-on-year, according to data released Monday morning in Beijing (still suspicious). The weakest pace since the rebound after Covid 19.

In particular, Capital Economics said China’s growth was near zero compared to the previous quarter, up 0.2%, the second weakest quarter since at least 2010. “Uncertainty related to the global economy is increasing, but the domestic recovery remains volatile and uneven,” China’s Census Bureau commented.

Low consumption

Asian giants are facing a series of shocks, some temporary and some longer lasting. Some are intentional and some suffer. On the demand side, household consumption remains weak and hampered by the epidemic (targeted and limited) resurgence and the threat of delta mutations that have severely disrupted travel and tourism this summer. China’s population is still very cautious. Evidence is that tourist spending during “Golden Week” in October was 40% lower than pre-epidemic 2019 levels.

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On the supply side, exports continued to be strong. However, the sharp recovery of Chinese industry, which characterized the exit from the crisis, is skyrocketing. Factories face various supply constraints. In addition to parts shortages and soaring raw material costs, “World Workshops” are facing significant power savings, primarily related to coal shortages.

This phenomenon has spread in recent weeks, forcing certain industries to stop or reduce production in about 20 states. If Beijing accelerates coal imports, reopens certain mines and orders prices to rise, thermal power plants will remain idle.

Evergrande trouble

The difficulty of real estate was added to this. Home launches and new home sales have fallen in recent weeks in connection with the credit crunch and the setbacks of developer Evergrande.

This sector has traditionally been one of the locomotives of the Chinese economy, accounting for 15% of GDP and even about 30% considering its knock-on effect (construction, furniture, etc.). Real estate has played an important role in post-pandemic recovery, but Beijing reprioritized debt reduction a year ago, limiting local government investment, tightening bank credit terms, and finance. We have decided to impose a “red line” on promoters in terms of proportions.

There is no “Lehman moment”

Due to these new threats, many economists have revised their growth forecasts for 2021 and 2022. While continued attention associated with Covid-19 continues to curb consumption, it will significantly weigh growth in the coming months, “says Lewis Kais of Oxford Economics.

“For now, the shock of a worsening real estate decline has been mitigated by very strong exports, but external demand is expected to recede next year as global consumption patterns normalize as we exit the pandemic. “Masu,” warns Julian Evans Pritchard of Capital Economics. Authorities may not need to rush to inject stimulus, as Beijing will undoubtedly reach its modest growth target of “more than 6%” this year.