NewsWhy China is losing economic momentum

Why China is losing economic momentum

China, a country that for years seemed immune to the ups and downs of the global economy, with double-digit GDP growth, is losing momentum.

The Chinese economy suffered a sharp slowdown in the second quarter of 2022, to the point of registering its worst performance since 2020, as a result of the health restrictions due to covid-19 and the crisis affecting the real estate sector.

The second largest economy in the world had a year-on-year growth of 0.4% between April and June, after registering 4.8% in the first quarter, according to official figures released on Friday, July 15, by the National Statistics Office (ONE).

This is the lowest figure since the first quarter of 2020, when covid-19 paralyzed activity in China, causing a 6.8% drop in GDP.

China has set a GDP growth target of “about 5.5%” for this year, but many economists doubt it will be achieved. This growth figure would be the lowest for China since the early 1990s, with the exception of the period covid.

These are some of the reasons that have caused the Chinese economy to lose momentum and thus put the economic growth of the rest of the world at risk.

Pandemic and lockdowns

The slowdown came after China’s largest city, Shanghai, was locked down for two months to contain a Covid-19 outbreak, disrupting supply chains and causing factories to close.

Beijing has insisted on maintaining its zero-Covid policy, which aims to eradicate virus outbreaks through quarantines and mass testing, which has hit the economy hard.

“Internally, the impact of the pandemic persists,” ONE said in a statement on Friday, pointing to the drop in demand and the interruption in supplies.

“The risk of stagflation in the world economy is also increasing,” he added in the statement, which indicated that external uncertainties are growing.

China has recorded only one economic contraction in recent decades, and analysts expect that with recent figures, growth for this year will be around 4%, below initial forecasts.

If the markets expected a withdrawal, its scope is “a shock,” economist Rajiv Biswas, from the S&P Global Market Intelligence cabinet, told AFP.

Shanghai – which experienced the strictest confinements – suffered a resounding fall in the second quarter, as its GDP contracted 13.7% year-on-year.

Against this background, it is “hard to believe” in positive growth at the national level during this period, according to Julian Evans-Pritchard, an economist at Capital Economics.

The Chinese real estate crisis

The epidemic outbreak added to the difficulties that the Chinese economy was already experiencing: weak consumption, government pressure against various dynamic sectors such as technology, uncertainty linked to the war in Ukraine and a real estate crisis.

In June, the prices of new homes fell again (-0.5% year-on-year), according to the ONE. This is the second month of decline in this index, which takes into account the average prices in 70 Chinese cities.

On the other hand, “a growing number of buyers stop reimbursing their monthly payments as a result of the economic slowdown and delays” of real estate developers in the progress of works or the delivery of keys, stressed the economist Betty Wang, of the ANZ bank. .

This aspect of the real estate crisis is “worrying” because it threatens the financial system, warned economist Zhiwei Zhang, from the Pinpoint Asset Management cabinet.

Bank loans skyrocket

New bank lending in China soared in June, rising more than expected, while overall credit growth accelerated as the central bank stepped up efforts to revive a pandemic-battered economy.

Chinese banks granted 2.81 trillion yuan ($419.3 billion) in new yuan loans in June, up from May and beating analysts’ expectations, data from the People’s Bank of China showed on Monday. The volume of new loans was the highest since March.

Analysts polled by Reuters had forecast new yuan loans at 2.4 trillion yuan in June, up from 1.89 trillion in May and 2.12 trillion in the same month a year earlier.

Loans to households, including mortgages, rose to 848.2 billion yuan in June from 288.8 billion in May, while loans to businesses rose to 2.21 trillion from 1.53 trillion in May, according to central bank data.

The increase in loans to households reflects the recent relaxation of the housing market, according to analysts.

Chinese banks made 13.68 trillion yuan in new loans in the first six months of 2022, the highest figure for the first half on record, central bank data show.

Outstanding yuan loans rose 11.2% from a year earlier at the end of June. Analysts had expected growth unchanged from 11% in May.

Recovery plan, unfinished

China will step up its policy to support the economy, central bank officials said on Wednesday, July 13, adding that the overall level of debt is expected to rise amid efforts to revive the economy.

The remarks at a briefing came against the backdrop of Yi Gang, governor of the People’s Bank of China (PBOC), vowing to maintain an accommodative monetary policy to support economic recovery.

“We will use various monetary policy tools in a timely and flexible manner, give more play to the dual functions of aggregate and structural tools, and boost support for the real economy,” said Ruan Jianhong, head of the statistics department.

The central bank will maintain reasonably ample liquidity and push financial institutions to lower financing costs for companies, said Zou Lan, head of its monetary policy department.

“In the second half of the year, the economic performance continues to face great uncertainty and instability… We have to work hard to stabilize the economy and pay attention to changes in the inflation situation.”

With information from AFP and Reuters

The US resumes economic growth in the third quarter

After knowing the US GDP data in the third quarter, President Joe Biden praised the strength of the US economic recovery.

This country could be left without a president next week

The country's president, Michel Aoun, ends his mandate on October 31, but there is still no political agreement to decide who will be his successor.

LAST MINUTE: Economic activity in Mexico reaches its best level since September 2019

The IGAE grew for the second consecutive month, driven by an increase in primary and tertiary activities, although with a stagnation in those of the secondary sector.

They are the 7 men at the top of power in China

President Xi Jinping secured a third term as head of the Asian country, something unprecedented, and managed to fill the leadership of the Communist Party with people who are loyal to him.

China's economy grows 3.9% in the third quarter of 2022

The second largest economy in the world grew 3.9% between last July and September, a figure higher than the 0.4% increase in the previous three months.

More