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China’s economy rests on three volatile legs

China’s economy has embraced it from all sides, including power outages, real estate debt blunders, sea lane roars, and, shortly before, the outbreak of a short but damaging delta variant. Growth in the previous quarter was expected to drop significantly to 4.9% year-on-year. And given how modest countercyclical support has been so far, the next quarter will almost certainly get worse.

It’s still uncertain what will happen in 2022, but it seems to depend on three main things. How quickly Beijing will regain pressure on the real estate sector, whether consumers will finally be well, and whether exporters can stick to the recent increase in market share. Power outages are still a drag, but efforts to reopen closed coal mining and raise electricity prices will be of great help.

According to Bloomberg, when it comes to real estate, there has recently been a more forgiving stance of inking. Some major banks have been ordered to accelerate mortgage approval. However, credit growth in September remains sluggish, and the sharp decline in real estate investment, sales, and launches remains. Other funding channels for developers are so sharply restricted that sales are the key to turning things around. Residential floor space sales were down 16% year-on-year.

The news about consumers and trade looks good. China’s exports remained strong, with retail sales recovering from 2.5% in August to 4.4% year-on-year growth in September. Therefore, the real risk of 2022 concludes that Beijing’s strategy of doubling exports and tech industries is working well, while mercilessly squeezing real estate and high-value services sectors like internet technology. It may have been. event.

One of the possible threats is a reversal of exports. Chinese exporters are still very competitive, despite rising costs. However, they are also benefiting from the delta wave, which has closed many other Asian factories and prolonged the shift from spending on services to commodities in wealthy countries. In 2020, the increase in net employment in China’s industry exceeded the increase in services for the first time since 2012. This pattern may have been repeated this year. However, some of that change is temporary as wealthy economies eventually reach vaccination thresholds high enough for service spending to actually recover and foreign competitors strengthen manufacturing. It is destined to become a thing.

In theory, consumers still have a lot of room to spend. Residents of China saved about 34% of their disposable income in the first nine months of 2021, from an average of about 32% from 2017 to 2019. The real estate market is a source of other employment growth, such as a slump or a decline in exports, and consumers may remain cautious.

So far, Beijing has managed to avoid the turmoil caused by the downturn in real estate, but it’s still in its infancy. If more important policy easing does not come soon, there is a serious risk that most of China’s major growth drivers (real estate investment, consumption, exports) will all be down by mid-2022.

Write in Nathaniel Taplin (nathaniel.taplin@wsj.com)

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China’s economy rests on three volatile legs

Source link China’s economy rests on three volatile legs

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