As China gears up for its party congress, President Xi Jinping is facing one of the worst headwinds for the Asian giant’s economy. As the global economy faces the looming danger of recession, China is also slowing down. The nation narrowly avoided contraction in the April to June quarter. With figures for July- September quarter expected next week, it is predicted that Beijing’s goal of a 5.5 per cent annual growth rate will remain unmet. Ahead of the Communist Party congress, officials too have downplayed the need to meet the target.
As per a BBC report, economists are not expecting any growth. While the nation’s economy might have escaped the steep inflation plaguing the US and the UK, it is facing its own slew of problems. Here’s how China’s economy is in trouble:
1. A property market in crisis
China’s property market, which accounts for one-third of the nation’s GDP, is facing its biggest crisis, with the situation going from bad to worse. A faltering, debt-ridden real estate market has led to “ghost cities” with housing that could accommodate more than 75 million people sitting empty.
To revive the slumping market, Beijing as per reports has undertaken a “build, pause, demolish, repeat” policy.
As per a Telegraph report, in recent years approximately three billion square metres of housing in the world’s second-largest economy have been paused and/or demolished.
Also read | ‘Build, pause, demolish, repeat’: China to demolish buildings that could accommodate 75 million people
2. Zero-Covid: A China-specific economic slowdown
When the globe was hit by the COVID-19 pandemic, governments around the world took steps to protect their citizens and prevent fatalities. China’s “Zero-Covid” strategy to combat the coronavirus has left its economy crippled.
Stringent lockdowns in several cities including the manufacturing hubs like Shenzen and Tianjin have had an incredibly detrimental effect.
As per Reuters, while exports remained a major driver this year, China’s Assistant Commerce Minister Li Fei has warned that the nation’s foreign trade faces unfavourable factors like a weakening external demand.
Snap lockdowns have further dampened consumer enthusiasm and business confidence.
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3. What the government is(n’t) doing:
Even after 2.5 years of Zero-Covid, authorities have done little to ease covid curbs.
While Beijing announced a 1 trillion yuan ($203 billion) plan to boost small businesses, infrastructure and the real estate market in August, as per BBC, so much more could be done.
Investment in infrastructure, a loosening of credit requirements for homebuyers, builders, and local government, as well as tax cuts for households, are some things the administration can do.
4. The dismal state of the job market:
A slowing economy owing to the stringent Covid curbs, a huge number of graduates and a dearth of prospects are plaguing China’s job market.
The nation’s slowing economy has left millions of youngsters facing fierce competition for an ever-slimming raft of jobs and facing an increasingly uncertain future, reports AFP.
As per official data in July, one in five young people in Chinese cities was out of work. This is more than three times the national average and the highest recorded in four years, since January 2018.
Also read | China’s Xi all set to usurp Mao-era ‘Chairman’ post at upcoming party congress: Report
5. Climate woes:
Climate change too is negatively affecting China’s economy. In August, the nation’s central belt faced a severe heatwave, followed by a drought. High demand for air conditioning caused the electricity grid to be overwhelmed, impacting China’s industry.
6. Falling investment:
With the Covid curbs already lasting 2.5 years, foreign businesses in China have been hit. In September, the European Union’s Chamber of Commerce warned that the nation’s Zero-covid policy is crippling European businesses.
It reported that the “massive uncertainty” surrounding curbs have impacted 75 per cent of its member’s operations. The situation has prompted nearly a quarter of European firms to consider a shift of current and future investments out of China added the Chamber. This is the highest percentage in the past decade.
Nearly 11 million graduates entered China’s bleak job market this summer, with the economy growing at 0.4 per cent in the second quarter, the weakest in two years.
(With inputs from agencies)
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