Why the Chinese economy is slowing down. Report Nyt
The slowdown in the economy poses a dilemma for Chinese leaders. The analysis of the New York Times
Construction and real estate sales have plummeted. Small businesses closed due to rising costs and weak sales. Debt-laden local governments are cutting the wages of civil servants.
China's economy slowed significantly in the final months of last year as government measures to curb real estate speculation hurt other sectors as well. The closures and travel restrictions to contain the coronavirus have also dented consumer spending. Strict regulations on everything from internet businesses to after-school mentoring companies have sparked a wave of layoffs, the NYT writes.
China's National Bureau of Statistics said Monday that economic output from October to December was only 4% higher than in the same period last year. This represented a further deceleration from the 4.9% growth in the third quarter, July to September.
World demand for consumer electronics, furniture and other household conveniences during the pandemic produced record exports for China, preventing its growth from stalling. Throughout the past year, China's economic output was 8.1 percent higher than in 2020, the government said. But much of the growth happened in the first half of last year.
The snapshot of the Chinese economy, the main driver of global growth in recent years, adds to expectations that the broader global economic outlook is starting to decline. To make matters worse, the Omicron variant of the coronavirus is starting to spread in China, leading to more restrictions across the country and raising fears of new supply chain disruptions.
The slowdown in the economy poses a dilemma for Chinese leaders. The measures they have imposed to tackle income inequality and curb companies are part of a long-term plan to protect the economy and national security. But officials are wary of causing short-term economic instability, particularly in a year of unusually political significance.
Next month, China hosts the Winter Olympics in Beijing, which will focus an international spotlight on the country's performance. In the fall, Xi Jinping, the Chinese leader, is expected to claim a third five-year term at the Communist Party congress.
With growth in his country slowing, demand slowing, and debt still at near-record highs, Mr. Xi could face some of the biggest economic challenges since Deng Xiaoping began to lift the country out of his Maoist straight jacket four. decades ago.
"I fear that the functioning and development of the Chinese economy in the coming years may be relatively difficult," said Li Daokui, a prominent economist and advisor to the Chinese government, in a speech late last month. "Looking at the five years as a whole, it could be the most difficult period since our reform and opening 40 years ago."
China also faces the problem of rapid aging, which could create an even greater burden on the Chinese economy and its workforce. The National Bureau of Statistics said on Monday that China's birth rate dropped sharply last year and is now just above the death rate.
The private sector is struggling
As the costs of many raw materials have risen and the pandemic has pushed some consumers to stay at home, millions of private businesses have collapsed, most of them small and family-owned.
This is a major concern because private companies are the backbone of the Chinese economy, accounting for three-fifths of manufacturing and four-fifths of urban employment.
Kang Shiqing invested many of his savings nearly three years ago to open a women's clothing store in Nanping, a river town in southeastern China's Fujian province. But when the pandemic hit a year later, the number of customers dropped dramatically and never recovered.
As in many countries, there has been a large shift in China towards online shopping, which can beat stores by using less labor and operating from inexpensive warehouses. Mr. Kang was stuck paying a high rent for his shop despite the pandemic. Eventually he closed it in June.
Another persistent difficulty for small businesses in China is the high cost of borrowing, often at double-digit interest rates from private lenders.
Chinese leaders are aware of the challenges that private companies face. Premier Li Keqiang has promised further tax and tax cuts to help the country's many struggling small businesses.
On Monday, China's central bank made a small move to cut interest rates, which could help slightly lower the interest costs of the country's heavily indebted real estate developers. The central bank lowered its benchmark interest rates for one-week and one-year loans by about a tenth of a percentage point.
Construction stalled
The construction and refurbishment of new homes accounted for a quarter of the Chinese economy. Heavy lending and widespread speculation have helped China build the equivalent of 140 square feet of new housing for every urban resident over the past two decades.
This fall, the industry faltered. The government wants to limit speculation and deflate a bubble that has made new homes inaccessible for young families.
China Evergrande Group is just the largest and most visible of a long list of real estate developers in China who have been experiencing severe financial difficulties lately. Kaisa Group, China Aoyuan Property Group, and Fantasia are among other developers who have struggled to make payments as bond investors become more wary of lending money to China's real estate sector.
As real estate companies try to conserve liquidity, fewer construction projects are starting. And this was a big problem for the economy. The price of steel reinforcing bars for concrete in apartment towers, for example, fell by a quarter in October and November before stabilizing at a much lower level in December.
Falling house prices in smaller towns have damaged people's wealth value, which in turn has made them less willing to spend. Even in Shanghai and Beijing, apartment prices are no longer growing.
There have been faint hints of renewed government support for real estate in recent weeks, but no signs of a return to lavish lending by state-controlled banks.
Evergrande's financial distress "is a signal that money will be pushed from the real estate sector to the stock market," said Hu Jinghui, an economist who is the former president of the China Alliance of Real Estate Agencies, a national trading group. "Policies can be relaxed, but there can be no return to the past."
The International Monetary Fund estimates that government land sales each year have raised money equal to 7% of the country's annual economic output. But in recent months, developers have been cutting back on land purchases.
Short of revenue, some local governments have stopped hiring and cut bonuses and benefits for civil servants, prompting widespread complaints on social media.
In Hangzhou, the capital of Zhejiang province, a civil servant's complaint about a 25% cut in her pay spread quickly across the internet. The municipal government did not respond to a fax asking for comment. In the northern province of Heilongjiang, the city of Hegang announced it would no longer hire "low-level" workers. City officials deleted the announcement from the government website after attracting public attention.
Some governments have also raised corporate taxes to try to make up for the deficit.
Bazhou, a city in Hebei Province, raised 11 times more money in small business fines from October to December than in the first nine months of last year. Beijing has criticized the city for undermining a national effort to reduce the cost of doing business.
Pockets of resistance in exports
Strong overseas demand for Chinese exports, especially consumer goods, has spurred a nationwide wave of investment in new factories, up 13.5% last year from 2020.
Some consumer spending areas have been quite robust, particularly the luxury sector, with sports cars and jewelry selling well. Retail sales rebounded 12.5% last year from pandemic depression levels of 2020. But retail sales fell in December compared to November as coronavirus restrictions kept some buyers at home.
Few predict that the government will allow a severe economic downturn this year before the Communist Party Congress. Economists expect the government to ease its lending restrictions and increase government spending.
"The first half of the year will be challenging," said Zhu Ning, deputy dean of the Shanghai Advanced Institute of Finance. "But then the second half will see a rebound."
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/cina-economia-difficolta/ on Sat, 22 Jan 2022 07:40:20 +0000.