China’s economy: the epidemic reappears, and the violent shock caused by the triple pressure at the end of the year-BBC News

The data also verified this. The August comprehensive PMI index released by the Chinese statistics department also fell back to 48.9, falling into a contraction zone for the first time since March 2020. PMI is regarded as an economy’s “health checklist”, reflecting the overall growth or decline of the manufacturing industry. The PMI’s rise and fall line is 50%, higher than 50% means that the manufacturing industry is expanding and developing, and vice versa, it means recession.

“The current situation facing China’s economy is very severe,” Chen Gong, founder of Anbang think tank, told BBC Chinese. In the third quarter, China’s economic growth rate fell to 4.9% year-on-year, a sharp slowdown. Some recent data showed that economic activity has further decreased. . “The situation in the fourth quarter is also not optimistic.”

Many market institutions have lowered China’s economic growth expectations. The latest World Economic Outlook issued by the IMF lowered China’s GDP growth forecast in 2021 to 8%, which is 0.1% lower than the previous forecast. Goldman Sachs lowered its forecast for China’s 2022 GDP growth rate from 5.6% to 5.2%. At the same time, it expects that the growth rate of China’s economy in the fourth quarter of 2021 will slow to 3.1%.

“The deep-seated contradictions hidden in the past rapid growth process will be revealed when the economy turns down.” Wang Yongli, former deputy governor of Bank of China, said in a recent public event.

“The biggest challenge facing China’s economy is the triple pressure: supply, demand, and expectations.” Economist Intelligence Unit (EIU) economist Su Yue told BBC Chinese. Chinese officials are not shy about the difficulties encountered by the economy. The communiqué of the Central Economic Work Conference just held described the triple pressure as “demand contraction, supply shock, and weakening expectations.”

Behind the shrinking demand is the downward pressure on the real estate industry.

Looking back at 2021, China’s largest real estate company Evergrande was tightly tied to the word “crisis”-bonds failed to be paid, stocks plummeted, high-quality assets were sold, investors protested, and buyers hesitated.

The intensity, breadth, and even the dramatic strength of the Evergrande crisis make it easy for people to overlook the situation faced by the industry as a whole. In fact, like Evergrande, many leading real estate companies in China are facing liquidity difficulties, and a number of small and medium-sized real estate companies have fallen, and the entire real estate industry is facing a deep shock.

Evergrande and the entire real estate industry have a decisive influence on the Chinese economy. Since the beginning of this century, the property market has been the locomotive driving China’s domestic demand, but the rapid economic development has caused China’s asset prices to continue to rise. Both companies and residents are borrowing heavily, and risks continue to accumulate. The entire financial and real estate system is gathering risks.

In response to this risk, China has also introduced a series of regulatory measures. Yang Yang, assistant professor of real estate in the Business School of the Chinese University of Hong Kong, introduced to the BBC Chinese that since 2010, the government has begun to regulate the real estate market to stabilize housing prices, land prices, and market expectations. In order to avoid financial systemic risks, we have adhered to the positioning of “no real estate speculation” since 2016, and adopted measures such as purchase restrictions, loan restrictions, strict price management, and market order. Since 2020, a series of far-reaching policies have been introduced, such as the “three red lines” for financing key real estate companies, and a ceiling on the concentration of real estate loans for financial institutions.

The “sickness” of the property market suddenly encountered regulatory “drugs”, and the crisis of real estate enterprises finally broke out in 2021. “For real estate companies, the era of rapid expansion of capital dividends with high leverage and high turnover is over.” Yang Yang believes that the real estate industry will no longer be the backbone of China’s economy in the future.

For the entire economy, the downturn in the real estate market and even potential “thunderstorms” have made domestic demand precarious. Before the Chinese economy was faced with an external crisis, it would always open up and even encourage the development of the property market to quickly support the economic market.

Ren Zhiqiang, a well-known real estate developer in China, has a popular metaphor for this-real estate is like a “chamber pot”. If the macro economy is not working, you can use it to stimulate and stimulate, and then kick it back under the bed when it is used up.

Under the current downward pressure, the real estate industry is also showing signs of marginal relaxation. Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank, believes that the slowdown in real estate investment has become one of the main drag factors for China’s economic growth, but the proportion of new real estate loans in the third quarter has dropped from over 50% in the second half of 2016. Around 15%, credit conditions in the future property market are expected to bottom out.

Domestic demand represented by the property market has performed poorly, and China’s exports in the first three quarters of 2021 are very impressive.

Su Yue believes that compared with other economies in the world, the strong demand brought by exports is the bright spot of China’s economy.

In 2021, China’s foreign trade continued the trend of last year and made great strides. In the first three quarters, the total value of China’s foreign trade imports and exports was 28.33 trillion yuan, a year-on-year increase of 22.7%. In the third quarter, imports and exports increased by 15.2% year-on-year.

So far, China’s foreign trade imports and exports have achieved positive growth for five consecutive quarters.

The three years of the trade war and the two years of the outbreak of the new crown epidemic have not only failed to drag down, but on the contrary, the proportion of China’s trade in the world has reached a historical peak.

This anomaly is not difficult to understand. “China’s defense against the epidemic is strict, and the supply chain has shown strong stability during the epidemic.” Xu Tianchen, an economist at the Economist Intelligence Unit (EIU), previously introduced to the BBC in Chinese. These reasons enable companies to make decisions that are most in line with their interests. ——Return orders to China, which has fully resumed work.

In other words, China’s export growth this year is mainly driven by the reduction in production capacity caused by the severe epidemic in Europe and the United States, which shifts orders to China, which is the “substitution effect.” Reuters quoted Kaiyuan Securities macro analyst Zhao Wei as saying that with the accelerated promotion of vaccines and the gradual disappearance of the “dislocation” of the epidemic, the “substitution effect” of future exports will gradually diminish.

This puts the “uncertain” label on strong external demand-can China’s special period of prosperity during the epidemic continue in the post-epidemic era?

“Sports carbon reduction” became a high-frequency word in the second half of the year. After China put forward the goal of “carbon neutrality by 2030 and 2060”, the “carbon reduction” economy has become a booming trend.

However, in the summer of 2021, this trend ushered in a wave of backlash. This summer, the “electricity shortage” intensified. Industrial enterprises in many places “started three and stopped four” or even “started two and stopped five” staggered power consumption, which severely impacted industrial production and formed the second problem of the current Chinese economy. Supply shock”.

Lin Boqiang, a distinguished professor of the School of Management of Xiamen University and the dean of the China Energy Policy Research Institute, listed three reasons to the media: the relative shortage of supply caused by the excessively rapid growth of electricity demand, the increase in the price of electricity and coal, and the impact of the “dual control” policy.

“Dual control” refers to the implementation of dual control of total energy consumption and intensity. In August, the China Development and Reform Commission issued the “Barometer of Completion of Energy Consumption Dual Control Targets in Various Regions in the First Half of 2021”, showing that 19 provinces across the country had first and second levels Early warnings include Jiangsu, Guangdong, Yunnan and other provinces where the “power shortage” is severe.

The local governments named by the above-mentioned “barometer” have begun to implement strict electricity curtailment measures. The “commanded” power cuts and shutdowns directly impacted industrial production, and even affected residential electricity consumption in the three northeastern provinces.

Most of the power outages this round were concentrated in major manufacturing provinces such as Jiangsu, Zhejiang and Guangdong. “Limiting electricity and output has a greater impact on economic growth.” Reuters quoted Tang Jianwei, chief researcher at the Bank of Communications Financial Research Center, as saying that China’s economic growth momentum is weakening.

The data also confirms this judgment. In July of this year, the value added of China’s industrial enterprises above designated size remained at 6.4%. After the power cut began in August, the data dropped to 3.1% in September, and remained unchanged in October and November. At the lows of 3.5% and 3.8%.

In order to restore this situation, China has officially issued a number of policies to “prevent the phenomenon of campaign-style’carbon reduction’ from the system.” The media issued criticisms, ignoring objective laws, and “reducing carbon” is too radical to make a one-size-fits-all approach.

Su Yue believes that by 2022, upstream and downstream industries related to real estate deleveraging and the rectification of the Internet industry will further face the problem of insufficient cash flow and unemployment.

Furthermore, “the central government’s easing policy has been implemented too slowly. Taking into account the time lag of fiscal and monetary policies and the strict epidemic control related to the Winter Olympics, China’s quarter-on-quarter GDP growth will stabilize in the second half of next year.”

Fu Linghui, spokesperson for the National Bureau of Statistics of China, said that according to expectations, the manufacturing purchasing managers’ index has fallen continuously since April, and fell to a contraction range in September and October. Among them, the small-scale manufacturing PMI has been in contraction for 7 consecutive months. Interval. The business activity index of the accommodation, catering and other industries all fell back to the contraction range, mainly due to the spread of the epidemic. These all reflect the weakening of expectations.

Behind the expected weakening, many interviewees said that the long delay in getting out of the epidemic and returning to normalcy is the haze that has always hung over China’s economy.

In 2021, the new crown epidemics caused by the mutant strains have been one after another in China-the Guangzhou epidemic in February, the cases in Nanjing Airport in July and August spread to many places, and then the local confirmed cases in Fujian and Heilongjiang in September, 10 In January, the epidemic in Gansu and Inner Mongolia, and Heilongjiang again in November, and a new spread in Liaoning. In general, the number of daily confirmed cases rarely exceeds a hundred, but it involves most of the provincial administrative regions of the country before and after, showing a situation of sporadic outbreaks on a large scale.

As China adheres to the zero-clearance policy, once an epidemic occurs, the epidemic prevention measures are very strict. For example, after the outbreak of the epidemic in Fujian in September, many cities conducted multiple rounds of nucleic acid testing. Xiamen, which has a permanent population of 5 million, has carried out at least four rounds of national nucleic acid testing; Putian has a permanent population of approximately 3.2 million and has also carried out multiple rounds of nucleic acid testing.

The rebound of the epidemic and strict blockades in various regions have disrupted the recovery of the economy, especially the service industry, causing companies in some areas to suspend operations and production, and some small companies have broken their capital chains and led to bankruptcy.

Economist Yu Yongding said that the economic cost of China’s blockade is extremely high. In view of this, some virologists, epidemiologists and economists believe that China should abandon its zero tolerance policy and learn to coexist with the virus. But resistance to this approach remains strong. After all, China’s harsh measures have kept the country almost insulated from the new crown virus for months. At the same time, although the cost is extremely high (especially for tourism and travel-related services), China can still afford it.

In a recent public event in Hong Kong, the Honorary Director-General of the World Health Organization Margaret Chan said that at present, widespread vaccination is the most promising path out of the epidemic, and the imbalance of vaccine coverage between regions will become an obstacle to returning to normalcy. , “No one is safe until everyone is safe.”

The bad news is that even in countries with sufficient vaccines, there are a large number of people who do not trust vaccines. Many European countries have also broken out severe violent conflicts due to the new round of epidemic prevention policies.

The worse news is that Omi Keron, a variant of the new coronavirus that was first detected in South Africa, carries a series of “very unusual” mutations, bringing new opportunities for the economies of countries around the world, including China, to escape the epidemic. variable.