China’s economy is growing faster than expected, but uncertainty looms.
China’s economy increased faster than forecasters predicted in the September quarter, but the country’s property market’s dismal performance, as well as negative retail and import statistics, highlighted the country’s continued economic issues.
China, the world’s second-largest economy, increased its GDP by 3.9% year on year in the July-September quarter, according to the National Bureau of Statistics.
The GDP results, which were postponed by a week to prevent conflict with the critical Communist Party Congress, which gave Xi Jinping an unprecedented third term as leader, outperformed predictions of about 3.2-3.3% growth.
The outcome, however, fell short of the official target for 2022 of 5.5%, as the economy continued to be disrupted by lockdowns caused by the zero-Covid policy. According to the Associated Press, the International Monetary Fund projects China’s economy would develop at a 3.2% annual rate in 2022, the worst rate since the 1980s, discounting the 2.4% Covid-affected pace in 2020.
The “biggest takeaway” is that “Covid is still driving the economy,” Iris Pang, chief economist for Greater China at ING Groep NV, told Bloomberg News.
Beijing depends on infrastructure and industrial output investment to restore the economy, as it has in previous economic downturns.
Net exports also contributed to quarterly GDP growth but slowing growth in trading partners would likely deplete that source of stimulus in the future, according to economists such as Michael Pettis of Peking University.
The NBS attributed the September quarter’s rise to a 5.7% year-on-year increase in so-called fixed asset investments. This expansion was 1.5 percentage points more than in the previous quarter, albeit the September monthly increase was just over 0.5%.
Industrial production increased 6.3% in September, above both predictions for a 4.5% increase and August’s 4.2% increase as reported by the Associated Press.
Exports increased 5.7% year on year in September, the weakest rate of growth since April and down from 7.1% in August. Imports were nearly flat at 0.3%, falling short of the 1% growth predicted by experts, according to Reuters.
While retail sales increased 2.5% in September, the rate was less than half of the 5.4% increase in August, falling short of the 3.3% projection and highlighting China’s relatively shaky domestic demand, according to the agency.
This vulnerability extends to the real estate industry, where most signs continue to indicate downward. According to Pettis, the sector plays an outsized role in China, where the value of property is nearly double that of the US and triple that of Europe, despite the fact that the economy is only around three-quarters the size.
According to Bloomberg, China’s real estate industry declined for the fifth consecutive quarter in the most recent three months, extending the country’s deepest recession in history. In September, home prices declined for the 13th consecutive month.
More crucially, new house prices fell for the second month in a row in September, according to Reuters. This outcome may imply that purchasers are still hesitant to invest money on apartments that may never be built, despite a flurry of government programmes designed to boost demand.
Pettis stated earlier this year that developers have failed to deliver around 40% of the homes they had sold in advance between 2013 and 2020, during comparatively favourable times.
With the property market accounting for up to 30% of China’s gross domestic product (GDP), the market’s woes spell trouble for the world’s second-largest economy – and potentially global growth as well.
As authorities work to reign in unsustainable debt and market speculation, real estate values have plunged. As developers fail to complete housing developments on schedule, hundreds of thousands of purchasers are refusing to pay their mortgages for pre-sold apartments.
Protests by buyers of pre-sale houses began earlier this year in the southern city of Jingdezhen and have now expanded to almost 100 cities and 300 homeowners’ associations.
Deutsche Bank has estimated that the value of the mortgages affected by the boycotts amounts to 1.8 to two trillion Chinese yuan ($270bn-300bn).
“What China is experiencing right now is a policy-induced crisis,” according to Gabriel Wildau, the managing director of risk analysis company Teneo.
“What I mean by that is, people have been warning about a housing bubble for many years, and for good reason, but the acute stress that the market is under right now is the direct result of very draconian restrictions on lending to developers that were imposed about a year and a half ago.”
According to Alicia Garca-Herrero, chief Asia Pacific economist at Natixis in Hong Kong, the global economy is not at high risk of the type of financial crisis sparked by the collapse of Lehman Brothers in the United States because Chinese property developers hold relatively small amounts of overseas debt.
However, given the size of China’s economy, which accounts for over one-fifth of global GDP, a significant slowdown may still have a significant impact on global growth.
Of course, if Chinese banks finally can’t swallow this shock and their non-performing loans increase massively and there’s a financial crisis in China – which may not happen immediately – it will be more like Japan in the 80s and 90s. So not an immediate Lehman-type event – YET!
Online sources: aljazeera.com, theguardian.com
All opinions and views expressed or suggested by the Digital Zeitgeist are not necessarily the same opinions and views held by or suggested by GPM-Invest plus any and all partners, affiliates, parties, or third parties of GPM-Invest. Any type of media distributed by GPM-Invest IS NOT financial advice. Please seek advice from a professional financial advisor