Collapse of the consumedrop in exportsindustry at a standstill, investments dive, increase of unemployment youth. “China’s economy is not doing well collapsing”, headlined without frills the People’s newspaperjust days before the latest quarterly data released by the National Bureau of Statistics. Disappointing data on all fronts, which forced analysts to revise all estimates downwards. While the real estate sector is at risk of implosion and in the background the unknown factor of a debt at record levels.
Between April and June, the Chinese GDP grew by 6,3% compared to the same quarter of last year, less than expected (7.3%). On a quarterly basis, the increase was 0.8%, compared to 2.2% in the previous period, and to an average of 1.6% in the 2017-2019 period. In the six months, growth was 5.5%, while last year it was just 2.5% compared to the first half of 2021. In other words, Beijing is having a harder time than expected to get out of the forced stop of the pandemic and there is still no light at the end of the tunnel. Is JP Morgan That Morgan Stanley brought growth estimates for the current year to 5%, lowering them respectively from 5.5% and 5.7%.
The focus is on the real estate sector. Here too, JP Morgan analysts were forced to revise their estimates and today they are expecting one 20% contraction for new buildings, while previous estimates stopped at 7 percent. The collapse of the real estate giant, Evergrandeat the end of 2021 put both developers and buyers on alert, and today the former are struggling to get loans to finance new projects, while the latter are looking buying new homes that may not even be built. “The weakness in the real estate sector is likely to be a drag on Chinese growth for many years,” Goldman Sachs wrote in a statement. Read Also Economy & Lobby | by FQ.
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The home ownership rate in China is one of the highest in the world, exceeding 95 percent. Almost half of the owner families own at least two lodgings. In recent years, high demand in large cities has pushed up prices, and with the transfer of population to more densely populated centres, many housing estates in emerging cities have remained empty: today they are estimated to be 50 million unused housing units, with an average vacancy rate of 12 per cent. Also, since about the 70% savings of Chinese households have been invested in real estate, households lack liquidity to fuel growth and remain extremely cautious about daily expenses and durable goods.
That is why in the first six months of 2023 i deposits grew 18%while the retail sales, after encouraging growth of 12.7% yoy in May, June saw a sudden braking with an increase of 3.1 percent. A few days ago the Ministry of Commerce, together with other government bodies, promoted a series of actions to encourage the purchase of consumer goods, household goods, appliances, furniture but also Automobilesafter i subsidies already launched a few weeks ago by various municipalities to exchange small and large household appliances. Domestic consumption in the first half of the year contributed 77.2% to the gross domestic product and is the main driver of growth in what is currently the second world economy.
If the domestic market cries, exports don’t laugh. The first half of the year recorded a contraction of exports which is close to 4%, according to data released by the Customs. And if the demand for goods decreases, production also decreases. The Purchasing Managers Index (Pmi), an indicator that monitors changes in production, new orders and prices, in June showed a contraction for the manufacturing sector for the third consecutive month. Also foreign investment languishes: in the first 5 months they decreased year on year by 5.6 percent.
Inevitably they also suffer workerswhich in addition to the wage cuts more and more widespread, they see a constant increase in average hours worked against staff reductions. In June, the average weekly hours worked were 48.7, the highest in recent years and continuously growing: in 2018 alone they were around 46. At the same time, with a population that is slowly on average starting to grow oldthe youth unemployment grows to unprecedented levels. In the 16-24 age group, in urban areas, it reached 21.3%, and the situation does not seem rosy for the over 11.5 million recent graduatesa record figure, who are and will be looking for their first job this year.
In the background, meanwhile, there are starting to be some headaches about debt. Beijing reached a debt/GDP ratio of 279.7% in the first quarter according to estimates by Bloomberg on official data, including both public and private debt. Two areas of particular attention: the easy loan from banks to businesses after the restart, in an economic framework that however is not responding according to expectations, and the debt of local municipalities. The finances of some regions, such as Guizhou, Yunnan or Gansu are under pressure due to the collapse in revenues, in some cases dramatic: in 2022 Tianjin recorded a -62% compared to the previous year, the Heilongjiang region -59%. Goldman Sachs estimates municipal debt at 156 trillion yuan, with some regions more exposed than others. The central government remains on the sidelines and monitors developments. But an eventual renovation it could further undermine the limp growth of the dragon.