5 reasons why the Chinese economy is in trouble

Suranjana Tewari, BBC Asian markets correspondent

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The ‘zero Covid’ policy implemented in China negatively affects the country’s economy

The ‘zero Covid’ policy implemented in China and the decline in global demand continue to negatively affect the country’s economy.

Official growth data for the July-September quarter will be announced in the coming days.

If the world’s second largest economy declines, the probability of a global recession will increase.

It has already become clear that it is not possible for Pekin to reach its annual growth target of 5.5 percent.

The Chinese economy did not shrink in the April-July quarter, but some economists say they do not expect growth this year.

For now, China does not have the problem of high inflation as in the USA and the UK, but the country is facing various other problems.

The number of customers of China, which is defined as the ‘factory of the world’, is decreasing both in the domestic and international markets. Trade disputes with countries like the USA also hinder economic growth.

The Chinese Yuan fell to a record low against the US Dollar and investors began to withdraw from the country.

Meanwhile, the national congress of the Communist Party begins on October 16. This is a very important term for President Xi Jinping, who is expected to be elected to the presidency for the third time.

How did China’s economy come to this?

1- Zero Covid policy

The full closure policy implemented after the increase in Covid-19 cases in industrial centers such as Shenzhen and Tianjin continues to affect the economy deeply.

The decrease in the food-beverage, clothing and tourism expenditures of the people living in these regions causes pressure on many sectors.

According to the data of the National Bureau of Statistics, there has been a movement in manufacturing recently and an increase has been recorded in production since September.

Some experts believe that government spending on infrastructure is driving this change.

On the other hand, some independent experts suggest that there was a decrease in production in July and August and this decrease continued in September.

At the same time, there is a decrease in demand from countries such as the USA due to inflation and the Ukraine war.

Although experts say Beijing can work more actively to stimulate the economy, it is agreed that this will not mean much until the zero Covid policy is ended.

“If people can’t spend money and companies can’t grow, there’s no point investing to stimulate the economy,” says Louis Kuijs, Chief Economist for S&P Global Ratings Asia Region.

2- Pekin does not intervene adequately

Pekin has recently started to intervene in the economy.

The government provided $203 billion in support to small companies, infrastructure works and the real estate sector in August.

But experts say the government can do much more to meet its goals, encourage investment in the country and create jobs.

More investment in infrastructure, facilitating borrowing conditions for those who want to own a house, and tax cuts for households are some of the ideas put forward.

“The government has intervened very modestly so far,” says Kuijs.

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President Xi Jinping supports zero Covid policy

3- Crisis in the real estate market

The slowdown in the real estate market also negatively affects the country’s economy.

The real estate and housing industry accounts for one-third of China’s Gross Domestic Product (GDP).

“When confidence in the housing market declines, people’s attitudes about the general economic situation of the country are negatively affected,” says Kuijs.

Home buyers in the country are reportedly refusing to pay for their unfinished homes.

Many people think that their home will never be completed.

The decrease in housing demand also affected the import of materials used in construction.

Eev prices have lost more than 20 percent this year.

Analysts say the government needs to do much more to ease the pressure on the real estate industry and restore confidence in the market.

4- The climate crisis worsens the situation

Extreme weather events began to affect industries in China long-term.

The heat wave and drought in Xinjiang province and Chongqing city in August left the electricity infrastructure in these regions in a difficult situation.

As the use of air conditioners increased in these regions, which derive most of their energy from hydroelectric power plants, problems began to be experienced in the electricity grid.

Giants such as Foxconn and Tesla, one of the main manufacturers of iPhones, had to interrupt business hours or turn off the ignition completely due to energy shortages.

China Statistics Institute announced that only the iron and steel industry lost 80 percent in the first seven months.

Beijing has come to the aid of energy companies and the agricultural sector in these regions with tens of billions of dollars in resources.

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5 – China’s tech giants are losing their investors

The fact that some of the technology giant companies that have received international investment are targeted by the regulatory board does not help the state of the economy.

Tencent and Alibaba reported their first-ever decline in revenues in the last quarter. Tencent’s profits fell 50 percent, while Alibaba’s net income fell by half.

Tens of thousands of young people are unemployed. One in five young people between the ages of 16 and 24 is unemployed. This, in turn, could affect China’s productivity and growth in the long run.

Investors are also sensing a shift in Beijing’s policy. State pressure on some of China’s very successful private companies is increasing as the country’s leader, Xi, grows stronger.

In the face of the appearance of supporting state-owned companies, foreign investors take their money on the table.

Japan’s Softbank has withdrawn its massive investment in Alibaba. Berkshire Hathaway, owned by US businessman Warren Buffet, is also selling its shares in electric vehicle company BYD.

Tencent lost $7 billion in investment in the second half of this year alone.

Chinese companies traded on the American stock exchange are also under pressure from the United States.

In its latest assessment of the country, Standard and Poor’s states: “Some investment decisions are being delayed and some foreign companies are looking for a way to shift their production to other countries.”

Currently, the international business community is facing the fact that Beijing is not as open to doing business as it used to be. But Xi also jeopardizes the country’s economic success over the past 20 years.

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