China props up the economy?

China props up the economy?

The recent Covid outbreak in China has beenmetwithunremittinglockdownsbyXi Xinping ’ s government. This has caused problems in global supply chains due to the

resultinglow output from attendance firms. Th at e s work tock andlackof market has slumped over the past year (see graph below).

CSI300 China stock index (April 2021 to April 2022)

(Chart source: Bloomberg)

China has launched several rounds of economic stimulus measures in April. The first set of measures were to encourage lending by banks (majority owned by the state) for infrastucture projects as well as measures to prop up the fragile property sector. Infrastructure expenditure is usually used by the Chinese government to stimulate economic growth. However, the need to support the housing market came from the government’ s squeeze on overleveraged developers such as Evergrande that has caused a crisis of confidence in the sector. Part of the reason for the government’ s desire to cool the housing market is because its citizens cannot afford to buy a property formorethanonechild,whichishampering the need to stop the population decline in China. However,thepolicyhasbackfiredas the housing market has cooled so quickly that it has caused a sudden drop in prices. This has taken away consumer confidence.

(graph source: FT)

Chinesehousepricesweredown8.5%from a year ago in March. China is aiming for 5.5% GDP growth this year, but with the combination of Covid lockdowns and a rapidly cooling housing market that affects consumer confidence, it is unlikely to achieve this level and GDP could be minimal or negative as a result. Whether that is accurately reported is a moot point. The graph below shows GDP growth over the last 12 years.