China’s economy increased 4.9% between July and September last year, slower than expected.
The recovery seems to be slowing, as this quarter saw growth of almost 8%.
Power shortages, Covid-19 epidemics, and the pressure of Beijing on various industries all are taking their toll.
One expert stated that these developments could dampen growth over the remainder of the year.
Recent months have seen many difficulties for the second-largest country in the world.
Soaring commodity prices around the world have had a major impact on raw materials costs.
Beijing is increasing pressure on the regional governments in order to cut their carbon emissions to meet the country’s carbon neutrality goal by 2060.
Numerous provinces have implemented electricity rations that caused blackouts in homes and forced factories to shut down.
The country’s biggest coal-producing province was also affected by torrential flooding. About 30% of China’s coal is produced in the Shanxi region.
Heavy rains caused the coal price and government production caps to reach new heights.
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Power cuts in many sectors have caused disruptions, particularly for those industries that use large amounts of energy such as cement production and steel smelting.
China’s factories gate prices (a measure of how much manufacturers charge wholesalers for product) have experienced these effects and are growing faster than any time since records started 25 years back.
Capital Economics senior China economist Julian EvansPritchard stated that the downturn in industrial activity looks to intensify, while thermal coal prices are still increasing.
This is all while China’s real estate sector faces increasing pressure to cut its debt.
China Evergrande Group is the most prominent example. It owes over $300 billion and is on the verge of default.
Fantasia was another property developer that defaulted, while Sinic Holdings warned it may follow the same course. This has led to fears and concerns about larger problems.
Yue Su, Economist Intelligence Unit, stated that “the slowdown in property will impact the activities of firms involved in areas like construction contracting and building materials as well as home furnishing.”
China’s central banks have spoken out about the contagion risk over the weekend and broken their silence.
Evergrande’s “financial liability make up less that one-third of its total assets, and the creditors vary,” Zou Lan, director of the People’s Bank of China, stated.
Evergrande does not pose a risk to individuals. The financial sector is generally safe from the spillover effects of Evergrande.
Woei ChenHo, an economist from United Overseas Bank, Singapore says that the bank will likely lower its China growth forecasts for this year due to the crackdown on property and the energy crunch.
The numbers actually are much lower than we expected. The fourth quarter will show a slower pace because there will be more of an impact from the energy crisis.
Many of China’s most important companies, from big tech and gaming to education, are now facing restrictions on their social transformation policies.
A five-year strategy has been revealed by the Chinese government, which indicates that these crackdowns will last for many more years.
Chaoping Zhu of JP Morgan Asset Management said that although these reforms aim to long-term growth they currently weigh on domestic consumption as well as investment.
According to him, “Short-term shocks appear inevitable when a number of policy actions have been implemented in a brief period since July.”
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