Chinese Economy Slows As Power Outages, Real Estate Problems And Covid Tastie

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The Chinese economy grew slower than expected in the third quarter, official data showed on Monday, thanks to power outages, bottlenecks, Covid outbreaks and concerns about the struggling real estate sector.

Although the governor of China’s central bank has said the country is “doing well,” independent economists have predicted that the growing string of headwinds suggest a “deeper slowdown” resulting in the country’s weakest growth in over 20 years. of a decade next year.

Gross domestic product (GDP) grew 4.9% in the July-September quarter compared to the previous year, the national statistics office said on Monday, slowing from 7.9% in April-June and compared to expectations of a 5.2% increase expected by economists.

The result was the weakest since the third quarter of last year, when GDP also rose 4.9%, and marked a further deceleration from a record expansion of 18.3% in the first quarter.

However, more worrying for Beijing economic officials, on a quarterly basis, growth was only 0.2% between July and September compared to 1.2% in the second quarter, according to the data. This is the lowest level on record since the first release of quarterly figures in 2010.

New construction starts in September fell 13.54% from a year earlier, the third month of double-digit declines, according to Reuters calculations.

Along with concerns that real estate developer China Evergrande Group could officially default on its offshore debt this week, this will add to concerns that the real estate sector, which accounts for up to 25% of GDP, could drag the entire economy down. in a doldrums.

The shares were sold across Asia in the wake of the news, with Hong Kong the hardest hit with a 0.53% loss on the Hang Seng. The price of crude oil has gone up

Julian Evans-Pritchard, senior Chinese economist at Capital Economics, said his consulting firm’s “business representation” measure now indicates a “sharp contraction” in GDP.

“While some of the recent weakness in services is being reversed, industry and construction appear to be on the verge of a deeper downturn.

“For now, the blow of the worsening real estate slowdown is mitigated by very strong exports. But in the coming year, foreign demand is expected to decline as global consumption patterns normalize as the pandemic emerges and order backlogs are gradually cleared. In total, we forecast just 3% growth in our activity proxy in China next year, the slowest pace since the global financial crisis. “

The world’s second-largest economy has experienced an impressive rebound from the pandemic, but the recovery is faltering. Problems such as slowing factory activity, blackouts in the industrial heartland of the north of the country, weak consumer demand and the slowdown in the real estate sector have fueled speculation that policymakers could announce more. stimulus measures in the coming months.

The future of China Evergrande Group, the country’s second-largest developer, grappling with a mountain of $ 300 billion in debt, is one of the main concerns for the giant real estate industry.

It has already missed three bond repayments it owes foreign investors in U.S. dollars, and trading of its shares in Hong Kong has been suspended since Oct.4.

The crisis could come to a head this week when the 30-day grace period expires on the first installment of repayments – worth $ 83.5 million – which was missed in September.

But China’s central bank chief Yi Gang said on Sunday that the economy was “doing well” despite facing challenges such as default risks for some companies due to “poor performance”. management “.

Yi said the default risks for some companies and the operational difficulties of small and medium-sized banks were among the challenges for the Chinese economy, and that the authorities were watching closely “so that they do not become systematic risks.”

Despite setbacks from coronavirus infections, China’s economy is expected to grow 8% this year, Yi said at an online meeting of the Group of 30 International Banking Seminar, which coincides with the annual meetings of the International Monetary Fund. and the World Bank.

“Economic growth has slowed down a bit, but the trajectory of the economic recovery remains unchanged,” he said.

Authorities will first try to prevent Evergrande’s problems from spilling over to other real estate companies to avoid wider systematic risk, he added.

The crisis raging in Evergrande and other major homebuilders has pushed the debt market’s risk premiums on weaker Chinese companies to an all-time high last week and sparked a new round of downgrades. credit notes.

“The interests of creditors and shareholders will be fully respected in strict compliance with the law,” Yi said. “The law clearly indicated the seniority of responsibilities.
The authorities will give the highest priority to protecting consumers and home buyers, while respecting the rights of creditors and shareholders, he said.

China’s central bank was taking various measures to counter financial risks, such as rebuilding the capital of small and medium-sized banks, Yi said.

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