China in dire straits as economy slumps
While exports have declined on higher commodity prices, China has become a net importer of food in the past decade – ominous for a country with the world’s largest population.
Better economic growth has been the carrot that the communist government has dangled to keep people invested in communism for decades. However, all this seems to be changing, and changing rapidly.
Since China’s liberalisation and economic reform in 1978, its GDP growth has averaged almost 10% annually, according to the World Bank. The country’s meteoric rise during 2002-2010 with an average about 12% GDP growth now faces an equally rapid crash as its economy nosedives, likely irrevocably, with the world shunning its cheap products and looking for a safer supply-chain.
China will face a very challenging global environment in 2022
World Bank
People world over are now looking at quality products, be it hardware or industrial applications. Even toys from China are now seen with disdain and its tag of being the manufacturer of the world has been ripped off swiftly with the onset of COVID-19 and geopolitical changes – all unlike what the CCP had planned.
According to the Chinese government latest data for July 2022 (before Nancy Pelosi’s visit to Taiwan) show industrial profits and retail sales had slowed down from June. In July, industrial profits grew 3.8% from a year earlier, and retail sales stood at 3.58 trillion yuan ($530 billion), up 2.7% – both below estimates (4.6% and 5%, respectively).
Fixed-asset investment for the first seven months of the year grew 5.7% yoy, but below the 6.1% rate in the January-June period. The unemployment rate came in at 5.4% in July, vs 5.5% in June.
“At the moment, weak demand in the domestic market is the most prominent barrier to faster economic growth, which can be observed from weak retail sales,” Li Chang’an, a professor at the Academy of China Open Economy Studies of the University of International Business and Economics, told the state-run Global Times.
Retail sales of home appliances fell 6.3% yoy, while construction and decoration declined 7.8%.
Real figures are likely to be much worse.
China’s central bank on Monday lowered interest rates on key lending facilities for the second time this year. The People’s Bank of China (PBC) said it was lowering the rate on 400 billion yuan ($59.33 billion) of one-year medium-term lending facility (MLF) loans to some financial institutions by 10 basis points to 2.75%, from 2.85%, according to the Global Times.
After reaching 8.1% in 2021, China’s growth is projected to slow sharply to 4.3% in 2022, well below its potential rate
World Bank
As always, the government says it will support economic recovery with consumption stimulus. So, expect a further deterioration in the country’s economy given its exports are likely to dip further on the Taiwan issue, excessive domestic supply, lower demand and further isolation.
The World Bank warned in its June report: “Beyond the dilemma of policy effectiveness in the midst of recurrent COVID outbreaks, there is a danger that China remains tied to the old playbook of aiming to boost economic growth through debt financed investment stimulus. This would lead to a further build-up in corporate sector debt, especially among already highly leveraged real estate developers.”
“Moreover, some local governments have little additional debt-carrying capacity and may not benefit from the additional bond quota, given controls on excessive local debt accumulation,” it added.
Notably, China’s GDP growth stood at -27.3% in 1961 but soared to +18.2% in 1964 (Indo-China war; second best growth rate in its history, first being in 1970). But now the world has changed. Xi Jinping desperately needs the war that he can’t fight; or China has to transform.
Send your comments to feedback@mddtimes.com
