Upturn – Bottlenecks – Inflation | Global economy in Covid cycle 8/02/2022
China: Slowing growth and turbulences on the property market Chinese economic growth is slowing down again. While China’s GDP grew by 8.1 percent in the year as a whole, growth slowed down to only four percent year on year in the fourth quarter 2021. Tighter lending standards curbed high-growth sectors in particular. Disruptions to supply chains and in energy supply have increased costs and put further pressure on China’s producers. On account of weak domestic demand, rising producer prices can only be passed on to domestic consumers to a limited extent. Despite increasing input costs and disruptions to supply chains, the export sector is still the dominant engine of growth of the Chinese economy. This could soon change if global competitive pressure increases further. China is expected to grow by slightly more than five percent in 2022. Credit growth curbs activity The Chinese leadership is again focussing more on reducing debt and the dependency of the economy on debt-financed growth. In September, new domestic loans amounted to around 29.7 billion U.S. dollars (191.2 trillion renminbi) which represents a year-on-year increase of only 11.7 percent, the lowest growth in domestic credit for over ten years. This puts a strain on the economic activity of the property and industrial sector in particular. Especially smaller private companies are finding it more difficult to finance themselves. Property sector in an adjustment crisis The growth rates in the property and construction sector dropped further in 2021. The slowdown in the increase in private household income and the uncertainty of the impact of China’s regulatory interventions in the property sector have curbed consumer demand for residential property. The sold floor space in commercial properties amounted to almost 1.8 billion square metres, which corresponds to an increase of only 1.9 percent. Total sales of commercial properties amounted to almost 18.2 trillion yuan, which is an increase of 4.8 percent. The lull in sales presents a problem for Chinese property developers as they then have difficulty in accessing the fresh cash needed to meet the regulatory requirements introduced in late 2020. Media attention has zoomed in on property giant Evergrande, indebted by over 300 billion U.S. dollars, after its default on the final date for interest payments on foreign bonds to the sum of 82.5 million U.S. dollars, making it factually insolvent. Infrastructure investment very low Investment in infrastructure remains restrained as local governments are faced with low tax revenues and attempts by the central Chinese government to contain the growth in local government debt. Capital investment in infrastructure continued to slow down in 2021 and finished off the year at only 0.4 percent above last year’s level. The drop in infrastructure investment was particularly pronounced in the structurally weak western provinces of China, further increasing the economic cleft between the more advanced eastern provinces. Industrial production: Upward trend subsiding The growth of the Chinese industrial sector has also slowed down although industrial value added was still 9.6 percent higher in 2021 than in the previous year. The export-oriented manufacturing sector, in particular, is still expanding to meet demand from abroad. The slower pace of growth in heavy industries and the automotive sector is nonetheless putting the Chinese economy under strain, with
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