China’s economy is slowing due to a building slowdown and power shortages, raising concerns about a potential shock to its trade partners and global financial markets.
According to official data released Monday, the world’s second-largest economy grew at a slower-than-expected 4.9 percent year over year in the three months ended in September, down from 7.9 percent the previous quarter. Factory output, retail sales, and construction and other fixed asset investment all fell short of expectations.
Official restrictions on energy consumption have affected manufacturing, as have shortages of processor chips and other components caused by the coronavirus epidemic. Construction, which employs millions of people, is slowing as authorities urge developers to reduce their reliance on debt, which Chinese officials fear is too high.
According to Mo Ji of Fidelity International, “ripple effects to the rest of the globe might be considerable” as a result of lower Chinese demand for raw commodities. “Even developed countries, such as the United States, would be vulnerable to a major tightening of global financial conditions as a result of a negative China growth shock coupled with financial stress.”
In the July-September period, output barely rose by 0.2 percent, compared to the previous quarter, the way other major economies are evaluated. That was down from 1.2 percent in April-June, and one of the worst quarters in the last decade.
The downturn adds to Beijing’s push to boost activity by loosening borrowing restrictions and spending more on public works. However, experts believe that even if this occurs, activity would deteriorate before policy adjustments take effect.
“Growth will decelerate much further,” Oxford Economics’ Louis Kuijs said in a research.
Leaders in China are attempting to guide the economy toward more sustainable development focused on local consumption rather than exports and investment, as well as to minimize financial risk.
Since authorities forced developers to cut their debt levels, construction and home sales have slowed, reducing demand for steel, copper, and other industrial imports.
Evergrande Group, one of the largest, is battling to avoid defaulting on $310 billion in debts due to banks and bondholders. This has raised concerns about other developers, though analysts believe the risk to global financial markets is low.
In mid-September, factories in several provinces were forced to close to prevent surpassing government objectives for energy consumption and intensity, or the amount of energy consumed per unit of production. Some have warned that delivery may be delayed, heightening the prospect of smartphone and other consumer product shortages ahead of the Christmas shopping season.
Factory production slightly increased in September, increasing by 0.05 percent over August. The growth rate was down from 7.3 percent in the first nine months of the year.
China’s growth projection for this year has been lowered, though it is still expected to be about 8%, which would be among the world’s highest. The stated goal of the ruling Communist Party is “greater than 6%,” which gives Beijing leeway to maintain its restrictions.
According to Rajiv Biswas of IHS Market, the near-term picture “remains challenging.” “Fears of infection to some other property developers” are also a problem in real estate.
Due to the contrast with 2020, when industries and stores were shuttered to combat the coronavirus, this year’s economic numbers have been inflated.
In the first quarter of 2021, output increased by a record 18.3 percent, but analysts claimed the recovery was already slowing.
Retail expenditure increased by 4.4 percent in September compared to the same month last year, down from 16.4 percent in the previous nine months.
In September, investment in real estate, manufacturing, houses, and other fixed assets increased 0.17 percent, down from 7.3 percent in the first nine months.
According to Fidelity’s Mo, “the property sector collapse will be a substantial drag on growth in the coming quarters.” “Even considerable policy easing now, which we believe is still improbable, will take time to spread into the actual economy,” says the economist.
According to the China Association of Automobile Manufacturers, auto sales in the world’s largest market plummeted 16.5 percent in September compared to a year ago. Production was halted due to processing chip shortages, according to the company.
Imports, which are a leading sign of Chinese domestic demand, increased 17.6% year over year in September, although this was less than half of the previous month’s 33 percent increase.