Chinese economy risks deeper slowdown than markets realise, big banks say

Asia's Tech News Daily

Chinese economy risks deeper slowdown than markets realise, big banks say

HONG KONG (BLOOMBERG) – China’s economy risks slowing faster than investors realize as President Xi Jinping’s push to cut its reliance on real estate and regulate sectors from education to technology combine with a power shortage and the pandemic.

Bank of America and Citigroup are among those sounding the warning that expansion will fall short this year of the 8.2 per cent anticipated by the consensus of economists. The slump could last into next year, forcing growth below 5 per cent , they warn.

Outside 2020’s 2.3 per cent , that would be the weakest in three decades.

Strategists at Bank of America muse that Mr Xi may even be embracing a once-in-two decades restructuring of the economy akin to Deng Xiaoping’s modernizations of the late-1970s and Zhu Rongji’s revamping of state-enterprises and finance in the 1990s.

“If so, the data flow from China could confound even the pessimists, and we are on guard for that scenario unfolding,” the strategists, led by Mr Ajay Kapur, told clients in a report last week, in which they predicted growth of 7.7 per cent this year and 4 per cent in 2022.

Beijing is determined to shift its economic model from its boom years, in which the country loaded up on debt and propelled itself to become the second-largest economy. Mr Xi is now overseeing a plan to stabilize debt growth – in order to ease financial risks – curb inequality and channel financial resources into hi-tech manufacturing to counter the threat of technology restrictions from the U.S.

Data released last week already showed a sharp slowdown in growth to 4.9 per cent in the third quarter from 7.9 per cent in the previous quarter, with more pain likely to come as electricity shortages persist.

Even before the pandemic hit, China was surprising economists with slower-than-expected growth caused by Beijing’s resolve to ease debt risks, which meant it avoided broad stimulus even as the U.S.-China trade war threatened expansion.

After modest easing to cushion the worst effects of the coronavirus, its debt-control policy resumed, with real estate companies such as China Evergrande Group feeling the biggest impact.

Mr Xi also set about seeking to reshape the consumer technology, private tutoring and real estate sectors, with officials arguing they represent a wasteful use of the country’s limited resources. Officials have mostly embraced the resulting slowdown.

China’s Premier Li Keqiang in March announced a growth target of “above 6 per cent ” for the year. While analysts saw this as a signal that Beijing was prioritizing other policy goals such as financial stability and environmental protection above economic growth, most at the time saw the target as extremely conservative.

“I’ve joked that maybe Li Keqiang knew more than we did,” said Mr Bert Hofman, a former director of the World Bank’s China office who now heads the National University of Singapore’s East Asian Institute.

But Beijing has signaled in recent weeks that it could loosen some policies, telling banks to pick up the pace of mortgage lending even as it repeated vows not to use the property sector as a short-term stimulus.

Any policy loosening in the next few months will be aimed at “preventing disaster” rather than supporting growth, Mr Hofman said. “As long as growth is above 6 per cent , I think China would feel relatively happy,” he added.

People’s Bank of China Governor Yi Gang recently said he sees about 8 per cent expansion for this year, and to achieve that, the economy would only need to expand 3.9 per cent in the current quarter, according to calculations from Bloomberg Economics.

China’s slowdown comes as the global recovery from Covid-19 risks losing momentum.

“When China’s economic engine sputters, growth fizzles the world over,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.

Among those at risk from less investment in China are commodity exporters such as Australia, South Africa and Brazil. Slower trade could also hit the likes of Malaysia, Singapore and Thailand. The impact could be felt further afield, according to Tuuli McCully, Singapore-based head of Asia-Pacific economics at Scotiabank. “Countries such as Chile and Peru ship significant amounts of commodities to China and will feel the impact of weaker real estate and other fixed asset investment activity in China,” she said.

Financial market spillovers may be more contained given the 18 per cent peak to trough correction in China’s CSI 300 Index this year did not spark global contagion, said Alvin Tan, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong. One possible upside from a cooling Chinese economy is that it could alleviate global inflation pressures, Tan said.

“Nonetheless, the net impact is decidedly negative for a world that is still recovering from the pandemic,” Tan said.

For now, even the most pessimistic economists expect growth to come in above 7.5 per cent this year, a relatively rapid rate for an economy the size of China’s. Beijing has set a goal of doubling gross domestic product from 2020 levels by 2035, which implies annual growth of around 5 per cent . That may prove to be a floor for policy makers.

China could see real estate investment fall 10 per cent in the first half of next year and still achieve 5 per cent annual growth as its credit cycle is close to its bottom and fiscal policy could pick up ahead of a crucial Communist Party congress in the autumn, said Mr Bo Zhuang, China economist at Loomis Sayles Investments Asia.

He predicts Beijing could set a growth target around 5.5 per cent for next year.

Still, the recent weakness when combined with concerns over Evergrande is prompting analysts to wonder if they remain too sanguine on near-term prospects.

Bank of America’s strategists outlined a “bearish scenario” involving a disorderly adjustment to the real estate market in which property prices fall 10 per cent , cutting sales and deterring banks from lending to the sector. In that scenario, growth could reach as low as 7.5 per cent this year and 2.2 per cent in 2022.

The other risk is that China’s policy makers may struggle to flick the switch back to growth mode if they feel that’s needed. Citigroup economists led by Mr Xiangrong Yu noted that the electricity shortages that are crimping industrial production will make it harder to cushion growth by boosting investment in infrastructure. That kind of policy could only work next year once the power crunch eases, they said.

Local governments are also struggling to find viable projects to invest in while property developers’ tight financing has slowed their land purchases, threatening to undermine a US$1 trillion revenue source for local governments.

“Property and energy problems will continue to affect growth in the fourth quarter,” said Mr Houze Song, a China economy researcher at U.S. think tank, the Paulson Institute. It “seems likely that full year growth will end below 8 per cent .”

Internet Explorer Channel Network
Asia's Tech News Daily
News Related

OTHER NEWS

Revenues of Hainan's exhibition industry to reach $9.4 billion by 2025

The growth rate of this indicator will average 12% in the next few years Read more »

France, Russia must work together to reach carbon neutrality, says ex-ambassador

Sylvie Bermann stressed that there was now a consensus that nuclear power is one of the least carbon dioxide (CO2) emitting forms of power generation Read more »

Minsk, Moscow agree on joint programs in gas and electricity

The Belarusian energy chief recalled that on November 9, a protocol was signed on amending the intergovernmental agreement on setting prices for natural gas Read more »

Essay awardees give helpful advice on AI, basic income

The Korea Times President-Publisher Oh Young-jin, left, and Woori Bank Executive Vice President Hwang Kyu-mok, right, applaud after giving awards to the winners of the newspaper’s 17th English Economic Essay ... Read more »

Cyber Monday spending in US expected to slow as shoppers see fewer deals

Workers move goods during operations on Cyber Monday at Amazon’s fulfillment center in Robbinsville, New Jersey, US on Nov 29, 2021. BENGALURU (REUTERS) – US retailers’ online sales likely slowed ... Read more »

Dollar exchange rate down to 74.54 rubles on Moscow Exchange

Euro up to 84.4 rubles Read more »

Energy shortage forces China to turn to Australian coal but don't expect ‘meaningful' lift in ban

China has buckled under the weight of coal and energy shortages to resume directly buying the commodity from Australia for the first time in almost a year. Commonwealth Bank Global ... Read more »

Japan factory production edges up as Asia's supply snags ease

TOKYO (BLOOMBERG) – Japan’s factory production edged up in October, ending a three-month slide and adding to signs that the global supply chain crunch may have been easing before the ... Read more »

China manufacturing expands in November as constraints ease

BEIJING (BLOOMBERG) – China’s factory activity improved in November as the impact of a power crunch subsided and more working days in the month helped to boost output. The official ... Read more »

New opportunities on the road to Net Zero

The road to net zero emissions by 2050 has massive potential for Australia’s mining, industry and manufacturing sectors. Mining and industry account for around a third of Australia’s total emissions, ... Read more »

SK Inc. completes merger with its advanced materials arm

SEOUL, Nov. 30 (Yonhap) — SK Inc., the holding company of South Korean conglomerate SK Group, said Tuesday it has completed the merger with its advanced materials arm to further ... Read more »

Baedal Minjok to stop taking payments on delivery

Delivery people directly hired by Baemin, classified as Baemin 1 and Baemin Riders, will only receive cash until Dec. 29. South Korea's No.1 food delivery service, Baedal Minjok (Baemin), will ... Read more »

S. Korea, China to hold senior-level economic talks amid urea supply woes

By Kim Eun-jung SEOUL, Nov. 30 (Yonhap) — South Korea and China are set to have a virtual senior-level economic meeting Tuesday, in which the two sides are expected to ... Read more »

Gas reserves in European underground storages 15 bcm below average, says Gazprom Export

Gas consumption in Russia increased by 46 bln cubic meters in January-September Read more »

South Korea factory output shrinks most since May 2020 on auto chip shortage

SEOUL (REUTERS) – South Korea’s factory output in October shrank at its sharpest pace in nearly 1½ years, government data showed on Tuesday (Nov 30), as global chip shortages continued ... Read more »

Gazprom fully fulfills contract requests, expects no decline in 2022, says Gazprom Export

Gazprom prevents any violations on contract obligations, Andrei Zotov noted Read more »

Industrial output falls by most in 18 months in October

gettyimagesbank South Korea’s industrial output fell by the most in 18 months in October as production in the manufacturing sector lost steam amid global supply chain bottlenecks, data showed Tuesday. ... Read more »

Gov't to introduce supply shock prevention measures

First Vice Finance Minister Lee Eog-weon / Yonhap By Lee Kyung-min The government will set up an early warning system for an acute shortage of 4,000 key import items, as ... Read more »

Omicron poses risks to global economic growth, inflation: Rating agencies

LONDON (REUTERS, BLOOMBERG) – The Omicron Covid-19 variant could hurt global growth prospects while also pushing prices higher, rating agencies Fitch Ratings and Moody’s Investors Service said, after the World ... Read more »

The Sanya IP Rights Protection Center in Hainan speeds up work

The time for reviewing applications to obtain documents confirming exclusive rights to inventions has been reduced more than sixfold Read more »

Hainan to recycle up to 85% of renewable resources by 2025

By that date, more than 95% of populated areas in the province will establish their own recycling facilities Read more »

Media: Hainan authorities to help develop digital zone in Fuxingcheng Science City

The secretary of the Hainan Province Industry and IT Technology Party Committee noted that "this science city is making progress every year, moving to stages of increasingly intensive development." Read more »

Omicron adds economic risks, inflation uncertainty: US Fed chief

WASHINGTON (BLOOMBERG) – Federal Reserve chair Jerome Powell, in his first public remarks on the Omicron variant of the coronavirus, said it poses risks to both sides of the US ... Read more »

AMC, Sony to reward advance purchasers of Spider-Man tickets with NFTs

There would be 100 designs in over 86,000 digital assets on the WAX blockchain to be given to the first movie ticket purchasers in all American locations. AMC Entertainment and ... Read more »

Ridesharing firm Uber resolves trademark dispute with NY-based Uber ad agency

US District Judge Kevin Castel found that Uber Inc made plausible claims that Uber Technologies infringed and diluted its trademarks. New York marketing agency Uber Inc agreed to dismiss its ... Read more »

OPEC+ postpones monitoring meeting to assess effect of new coronavirus strain on oil

At the same time, the OPEC+ ministerial meeting will be held on December 1 as planned Read more »

S. Korea's Hyundai, Galleria departments to host upcycling, animal protection campaigns

Hyundai Department Store will be collecting used transparent plastic bottles while donating 2,000 won for each participating customer to protect Eurasian otters. South Korean department store chain Hyundai and Galleria ... Read more »

Kremlin does not see risks for Nord Stream 2 from new US sanctions

In mid-November, it was reported that the certification of the Nord Stream 2 operator had been suspended until Nord Stream 2 AG, headquartered in Zug, Switzerland, transfers the main capital relating to the German segment to a German subsidiary Read more »

First flight to repatriate Russians from South Africa due December 3 — consulate general

On Friday, the WHO designated the B.1.1.529 variant as a "Variant of Concern" and assigned it the Greek letter Omicron Read more »

Russian Finance Ministry warns NPP construction in Hungary could face political obstacles

Rosatom and Hungary’s MVM signed a contract for the construction of new power units belonging to the Paks nuclear power plant in December 2014 Read more »

Indian Premier League teams banned from inking commercial deals with crypto, betting firms

The ban is a big blow to several IPL teams reportedly close to striking deals with cryptocurrency firms for next year’s campaign. The Board of Control for Cricket in India ... Read more »

Parliamentary subcommittee passes bill on delaying enforcement of virtual asset taxation

SEOUL, Nov. 29 (Yonhap) — A subcommittee of the National Assembly’s tax committee on Monday passed a bill on postponing the planned taxation of cryptocurrencies and other virtual assets. The ... Read more »

State pension fund logs 8 pct return through Sept.

SEOUL, Nov. 29 (Yonhap) — South Korea’s state pension fund posted a return rate of 8 percent in the first nine months of the year, aided by healthy gains from ... Read more »

Russian exporters focus on supplying ‘green' energy to China — Sechin

It was noted that the energy sector would remain its key role in relations between Russia and China Read more »

Challenges to sustainable financing in Singapore can be mitigated: Indranee

Minister Indranee Rajah said that Singapore can catalyse the flow of capital towards sustainable development in Asia. SINGAPORE – Mobilising sustainable finance has its challenges, but Singapore is taking measures ... Read more »

Russia does not see need for urgent oil market measures due to new coronavirus variant

The next OPEC+ ministerial meeting is still scheduled for December 2, Russian Deputy Prime Minister Alexander Novak said Read more »

Russia can fully increase oil production under OPEC+ deal, says Deputy Prime Minister

Earlier, doubts about Russia's ability to increase oil production within the OPEC+ quota were expressed by some experts Read more »

About 400 Russian companies launch investment projects in Murmansk region — governor

According to Andrei Chibis, the three regimes: the Russian Federation’s Arctic Zone, the Capital of Arctic advance-development territory, and regional incentives for small businesses offer unprecedented, unique conditions for business Read more »

Net direct tax revenue rises 68% to Rs 6.92 lakh crore till November 23

Representative image The net direct tax collection grew nearly 68 per cent during April 1 to November 23 to more than Rs 6.92 lakh crore, Minister of State for Finance ... Read more »

Investments in Northern Sea Route logistics complex to make $1.5 billion

The complex will include the Vitino seaport and oil base, the Tuloma sea terminal for mineral fertilizers, the Udarnik terminal, the Rosatom Cargo transport-logistics hub, and the Lavna complex to handle coal and general cargo Read more »
On free-english-test.com you will find lots of free English exam practice materials to help you improve your English skills: grammar, listening, reading, writing, ielts, toeic