In today's post I'm going to talk about China's economic situation.
It is a slowdown announced, but even more pronounced than expected, that of the Chinese economy. In the third quarter it grew by 4.9% compared to the same period last year, less than the Western competitors it was used to watching from afar. Compared to the second quarter of 2021, the period between July and September showed minimal progress: +0.2%.
In the first six months of 2021, China's economy had grown 12.7% compared to the same period in 2020, when lockdowns to stop the pandemic had halted manufacturing and trade. The first quarter of 2021 had marked an all-time high of +18.3%; the second had fallen to 7.9%. Now a further loss of momentum.
Prudently, the Party-State had set for this year an expansion "above 6%", which should be achieved. But the slowdown in the world's second largest economy opens up a new scenario, as Xi Jinping prepares for the Congress in autumn 2022 that should give him another five years in office. It is a risky challenge that Xi has issued promising "shared prosperity" for the Chinese people and a scaling back of "chaotic capitalism".
The PBOC assured investors on the Evergrande case, saying the government will succeed in containing the crisis of the Chinese real estate giant.
However, the crisis is spreading like wildfire across the real estate sector, with Sinic Holdings saying last week that it is unsure whether it will be able to repay (offshore) bonds in the amount of around $250m and China Properties group saying it has defaulted on more than $226m.
In addition, rating companies, last week further downgraded Chinese real estate companies.
This week, Evergrande will officially default if it doesn't pay interest on an offshore bond denominated in US dollars - the payment was due at the end of September but has a 30-day grace period. The company has been silent on coupon payments for four other bonds that were due in recent weeks.
Let's move on to China's GDP, which grew +4.9% in Q3 versus +7.9% in Q2 and +18.3% in Q1.
To what does the Chinese economy owe this major slowdown?
Here's a list of causes:
- Energy crisis;
- Chinese government tightening;
- Real estate crisis.
Beijing has signaled that it is in no hurry to stimulate the economy, suggesting that growth may continue to slow in the coming months. This means that the country's usual voracious demand for construction-related commodities could weaken further.
The slowdown has largely been the result of an attempt by Beijing to reduce financial risks by slowing the pace of lending to the real estate sector, which accounts for up to 25% of GDP once related industries are added. A worsening debt crisis in China Evergrande Group has added to the sector's woes, with land sales soaring and the risk of contagion increasing.
At the same time, authorities are cracking down on local government debt that fuels infrastructure investment, and an energy crisis that hit the economy last month has forced factories to curb or halt production.
Helen Qiao, chief economist for Greater China at Bank of America Corp, said in an interview with Bloomberg TV that fourth-quarter growth is likely to slow from 3% to 4%.
However, the Chinese government doesn't seem to be too worried, with the central bank governor saying that China's annual GDP outlook is likely to beat the government's expectations anyway.
China has been vying to increase production from its coal mines, but limits on electricity supply to the industry could last through the winter months, especially if coal is diverted for use in home heating. Thermal coal futures extended a rally in Monday's trading as some provinces said they will bring forward the start of the heating season due to cold weather.
Meanwhile, exports increased in September and retail sales growth improved slightly
Let's take a close look at the chart below
Another positive for China is the increase in jobs in September, despite the economic slowdown, the unemployment rate fell from 5.1% to 4.9%
The trade war with the United States, which has hit Chinese exports is just one of the problems. Domestic consumption is not doing well, with the auto sector contracting for the first time since the beginning of the year, investment falling due to the risk of bad debt, construction flat after booming, and inflation low despite the skyrocketing cost of pork due to swine fever.
Still, 6% means that the world's second largest economy is still running much faster than the rest of the world and even the figure for industrial production in September marks a +5.8% over August: such a situation in the West would be hailed as a triumph.
The government insists that the growth rate is satisfactory, that the slowdown is mainly due to the rebalancing of the system, from world factory to a more mature society that grows thanks to services and internal consumption. Less quantity and more quality.
China is not sinking, today's 6% is worth much more in absolute terms than the 10% of 2000, this is clear to everyone, but data gathered from independent sources indicate that the slowdown may be more pronounced than the National Statistics Office reports. "Manual labor-intensive industry is seriously hit," Leland Miller, director of the China Beige Book, which measures economic strength on thousands of surveys of Chinese companies, told the Wall Street Journal:
- investment and hiring are down;
- an estimated 13 percent of the migrant workers powering assembly lines and construction sites in major cities have not returned to work since last winter's Lunar New Year;
- the automobile market, worth 10 percent of GDP, has fallen for the first time in 20 years;
- satellite photos show lights out in industrial centers, meaning night shifts are no longer needed to produce.
Taking these factors into account, the Beige Book on China calculates that real GDP could have grown by 2 or 3 points less than official figures.
China maintains the absolute lead in contributing to global growth: 27.5% in 2018, so its continued slowdown hurts the entire globalized economy and slows down the recovery of all developed economies (in a previous post of mine I had posted a graph that correlated the growth of Chinese GDP with that of Germany, the main industrial economy of the EU, with a time difference of only 3 months) with a possible extension of expansive monetary policies ... we will see what happens, but the famous FED tightening of interest rates seems more distant.
Thanks for reading.
Posted Using [LeoFinance <sup>Beta</sup>](https://leofinance.io/@cryptomaster5/overview-of-china-s-economy)
hiveblocks