Despite economic growth projections of 8% this year, China is struggling to overcome many economic challenges on its own. The debt problems of the country’s largest real estate developers – led by China Evergrande, which owes more than $ 300 billion (266 billion euros) – threaten to explode the real estate market. New home sales are down by a fifth.
Beijing has also moved to subdue many Chinese tech giants, causing shares in online shopping giant Alibaba and video game maker Tencent to sell off, among others. Tencent was ordered on Friday to halt the rollout of new applications amid further restrictions on its expansion plans.
Chinese regulators last month attacked the regional banking sector over concerns that local business tycoons and government officials had formed too close ties with some of the country’s small and medium-sized lenders. According to The Economist magazine, these banks represent about a third of China’s commercial banking sector, with $ 14 trillion in assets.
Exports support weakening economy
China’s incredible manufacturing apparatus, however, has come to the country’s rescue, helping to prop up the economy. In October, the Asian powerhouse posted a record monthly trade surplus as exports surged despite disruptions to the global supply chain. Exports rose 27.1% last month from a year earlier to reach $ 300.2 billion.
As Beijing moved to allay fears about its measures to cool the housing market and restrict banks and tech companies, some analysts are surprised that demand for Chinese goods in the West has remained robust for so long after the lockdown. . At some point, they argue, the United States and Europe will see growth in domestic services, including tourism and hospitality, outstrip demand for imported goods. And where will that leave China?
“China has benefited from extremely strong global demand, while at the domestic level, the weak point is consumption. She never really picked up. [from the pandemic]compared to investment or manufacturing, ”Max Zengelin, chief economist at the Mercator Institute for Chinese Studies (MERICS), based in Berlin, told DW.
A rebound in consumer spending has been hampered by new outbreaks of COVID-19, long after the virus first appeared in Wuhan at the end of 2019. An uncompromising elimination policy has at times quarantined entire neighborhoods and cities. The restrictions hurt retail sales, which failed to reach an expected 7% year-on-year increase in August, rebounding to just 2.5%.
Winter Olympics won’t help
The Winter Olympics, which will take place in Beijing and neighboring Hebei province in February, would usually give any economy a boost. But entry restrictions will likely keep foreign sports fans away, while any large-scale domestic travel could fuel new coronavirus outbreaks and further curb consumer spending.
Strong export momentum should support growth for several months, according to Bloomberg Economics projections. But declining Western demand remains a major risk for the world’s second-largest economy, Zengelin said, which would leave Beijing in “a sticky situation.” The Chinese leaders would then be “under pressure to trigger a stimulus which could be in contradiction with their attempts to reduce the financial risks”.
China has pledged to stop flooding the economy with massive monetary and fiscal stimulus to boost growth. Instead, Beijing is planning smaller, targeted stimulus measures for domestic consumption, including support for small and medium-sized businesses.
The new approach is a way to realize President Xi Jinping’s vision of “common prosperity” to address income and wealth inequalities that have worsened over the past decade.
Politics don’t match rhetoric
Chinese leaders have for years asserted that domestic consumption is an economic priority, but manufacturing for export has continued to dominate. The Communist Party Politburo Standing Committee has proposed a strategy for a “dual circulation” economy, where domestic demand is stimulated, while dependence on foreign markets is reduced. Zengelin said the idea remains a “theoretical concept, not a policy.”
“China’s economic policy goes against stimulating domestic consumption. In order to stimulate consumption, you need to make fundamental institutional changes and restructure the economy,” he said. “Domestic consumption remains China’s weak point and I see no indication of any change in the near term.”
In a recent opinion piece for Project Syndicate, US economist Stephen S. Roach warned against Beijing’s “redistribution and re-regulation” plan, which he said “strikes at the heart of well-founded reforms. in the market ”which“ supported the miracle of China’s growth ”. since the 1980s. Roach said increasing state control could be a “dangerous miscalculation.”
Zeneglin backed up the comments by noting that “boosting consumption means withdrawal from the state, but we are seeing the opposite.”
A report last month by the US think tank Atlantic Council and consultancy firm Rhodium Group called on Beijing to allow the private sector to play a bigger role in the economy and boost cross-border investment to maintain its economic advantage.
“Without market-oriented change, China will find it difficult to maintain growth potential above 3% per year by the middle of this decade,” the report said.
A hint that Beijing is brewing a new stimulus came this week when the country’s central bank deleted several sentences in its latest monetary policy report.
They included a reference to maintaining “normal monetary policy” and another, detailing how it would not engage in a large-scale flood-like stimulus.