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  • Rushmi Rosairo

Monday Market Musings>>> China’s Economy in Peril


Picture Credit: Al Jazeera


China’s economy is currently on its way to the slowest expansion in four decades, according to economists. Although it showed faster-than-expected growth in factory output and retail sales in August, recent reports suggest that its share of the rise in global trade will be cut in half during the next five years.


Some analysts predict that the economy would expand by just 3% this year, which would be the weakest growth rate since 1976, excluding the 2.2% growth during the initial COVID strike in 2020, since there are few signals that China will considerably loosen zero-COVID anytime soon. The “zero-COVID" policy, which includes rigorous lockdowns, travel restrictions, and mass testing, has had a significant negative impact on the nation's economy. The government's campaign of repression against major technology companies also appears to have had a significant impact on the young labor force. Youth unemployment stayed high at a 18.7% after reaching a record high of 19.9% in July.


Businesses are reluctant to grow and add additional employees because of low consumer and corporate confidence. More than half of the population are tending to save more rather than invest or consume, dude to the uncertainty of the situation, according to the most recent quarterly survey done by PBOC (China’s central bank) as well as People’s Bank of China.


Picture Credit: The New York Times


In Shanghai, one of China's most costly cities, social media debates have erupted to share money-saving advice, such as the "Live off 1,600 yuan a month challenge." As consumer spending counts for more than half of the country’s GDP, economists state that this money-saving trend would be a hazard to the economy. Among other, both the leader in French luxury goods and owner of Givenchy, LVMH (LVMH.PA), and the world's largest coffee company, Starbucks Corp (SBUX.O), reported substantial declines in sales in China during the most recent quarter.


Its noticeable that the Covid restrictions have delt a blow to the investor preference, and a recovery seems a little far fetched at the moment. The Chinese currency is also expected to weaken further. Banks including Nomura, Morgan Stanley, and UBS predict that the economy will expand by less than 3% in 2022 which is significantly less than the official aim of 5.5%.


Adding to the growing lists of concerns, Since mid-2020 (when regulators intervened to reduce developers' excessive leverage), China's real estate industry has been thrown from one problem to the next. China’s property market, which was once a key driver of economic growth, is now scrambling to stay afloat. Investment on real estate fell a 13.8% last month, the fastest drop since December 2021, according to experts. China used to rank top during 2016 and 2021, with the strongest increase in both exports and imports. Although with China’s recent predicament, South and Central Asia, Asean nations, and Sub-Saharan Africa are predicted to overtake it between 2021 and 2026.


September 26th 2022 | 1:30 PM

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