TAIPEI. Getting rich was glorious with Deng Xiaoping. In recent years, thanks to the rectification campaign and the rhetoric of common prosperity, it has become dangerous. Now, however, it risks being above all difficult. The Chinese economy is giving worrying signals, just as the decisive XX Congress of the Communist Party is approaching for Xi Jinping, which should give him a historic third term. For this, Beijing is running for cover. Yesterday, the Central Bank injected 10 billion yuan (just under 1.5 billion euros) into the banking system to guarantee the necessary liquidity and, above all, it surprisingly cut the rates on 5-year loans by 15 basis points, bringing them from 4.60 to 4.45%. A move against the trend of global central banks and aimed at supporting an economy that is showing more than a crack.
All the latest data suggests that reaching the 5.5% annual growth target will be complicated to say the least: America could overtake Beijing for the first time since 1974. Industrial production slowed by 3% in April, while sales retail plummeted 11% year-on-year. The Caixin index fell to 36.2, well below the midline of 50 below which means that most firms have experienced a contraction in activity. Real estate sales plunged by 46.6%. Among the main reasons are the draconian anti Covid restrictions ordered by Xi. Unemployment rose to 6.1%, close to an all-time high of 6.2% in February 2020, at the height of the pandemic in Wuhan. The data concerning young people between 16 and 24 years of age, where the unemployment rate reaches 18.2%, is particularly alarming.
The government has long been trying to abandon the traditional “world factory” model, completing the transition to a modern consumer society. The numbers show that the goal is still a long way off. Traditional recipes such as infrastructure investments are used to support the economy, generating additional debt. But even real estate investments, thanks to a crisis in the sector of which Evergrande was only the tip of the iceberg, fell by 2.5% in April (first time in two years) compared to March.
The state coffers are less fat than in the past. Last month, tax revenues plummeted 41% due to business support measures to overcome the impact of the restrictions. The problem is that the beginning of the post-Covid era is not yet in sight. The refusal to host the 2023 Asian Cup, for which brand new stadiums had been built, signals that the reopening is far away. Also for this reason, foreign companies and investors are fleeing the Chinese market. Only in April, according to the Financial Times there were disposals for an equivalent of $ 16 billion of Chinese debt, while in the first four months of the year, renminbi bonds worth a record 35 billion were discharged. The first quarter of 2022 was the worst in recent years for foreign direct investment, down by 50.5% compared to 2021. According to several surveys of foreign chambers of commerce in China, several American and European companies are thinking to leave the country. The China Foreign Exchange has stopped providing data on transactions by foreign investors, perhaps to conceal a flight that risks being fueled by the lack of transparency on debt.
The technological giants also pay the price. Tencent recorded the worst quarter in its history since the 2004 stock exchange, with a market value that has risen from 930 billion in February 2021 to 451 billion today. The Party seems intent on loosening its grip on the private sector to limit the damage. But in the meantime the discontent of the Chinese and foreign economic world is growing, as well as the signs of intolerance of citizens on the zero Covid strategy. On the triumphal year of Xi, some shadows thicken.