Hong Kong
CNN
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China has been an engine of global growth for many years.
But China’s slowdown in recent weeks has raised concerns among world leaders and investors that they no longer expect the economy to act as a bulwark against weakening elsewhere. In fact, for the first time in decades, the world’s second largest economy itself is at stake.
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(HSI) The index entered a bear market on Friday, dropping more than 20% from its recent peak in January. The People’s Bank of China (PBOC) took its biggest ever defense of the yuan by setting it well above its estimated market price last week after it fell to its lowest level in 16 years.
The problem is that growth has stagnated after a surge in activity earlier this year following the lifting of coronavirus lockdowns. Consumer prices are falling, the real estate crisis is deepening, and exports are sluggish. Youth unemployment is so bad that the government has stopped releasing data.
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To make matters worse, major homebuilders and prominent investment firms have failed to pay their investors in recent weeks, prompting fears that the ongoing housing market downturn could lead to heightened risks to financial stability. Concerns are rekindled.
A lack of decisive measures to stimulate domestic demand and fears of an epidemic have sparked another growth downgrade, with several major investment banks cutting their growth forecasts to less than 5%.
![The skyline of Shanghai, China's financial capital, taken on August 7](https://media.cnn.com/api/v1/images/stellar/prod/230821154721-shanghai-economy-080723.jpg?c=16x9&q=h_720,w_1280,c_fill)
“We are lowering our real GDP growth forecast for China as the real estate recession deepens, external demand weakens further and policy support is weaker than expected,” UBS analysts said in a research note on Monday. .
Researchers at Nomura, Morgan Stanley and Barclays have previously cut their forecasts.
This means China may fall far short of its official growth target of “about 5.5%,” which would be embarrassing for President Xi Jinping’s Chinese leadership.
It’s a stark contrast to the 2008 global financial crisis, when China launched the world’s largest stimulus package and became the first major economy to emerge from the crisis. This is also a reversal from the early days of the pandemic, when China was the only major developed country to avoid a recession. So what went wrong?
China’s economy has been in a slump since April, losing momentum after a strong start to the year. But concerns were heightened this month after Country Garden, once the country’s largest real estate developer, and top trust company Chuei Trust defaulted on debt.
Reports that Country Garden failed to make interest payments on a $2 bond spooked investors and rekindled Kotai’s memories of a 2021 default that marked the beginning of a real estate crisis.
Evergrande is still in the midst of a debt restructuring, but the problems at Country Garden have raised new concerns for the Chinese economy.
The Chinese government has launched a number of supportive measures to revitalize the real estate market. But now even stronger players are on the brink of default, highlighting the challenges facing the Chinese government in containing the crisis.
Meanwhile, property developer defaults appear to be spreading to the $2.9 trillion domestic mutual fund industry.
Chuei Trust, which managed $87 billion worth of funds for corporate clients and high net worth individuals, has decided to repay a series of investment products worth about $19 million in at least four companies, according to a company statement earlier this month. I neglected it.
Angry demonstrators recently protested outside the trust company’s offices, demanding payment for high-yield products, according to videos posted on Chinese social media seen by CNN.
“Further losses in the real estate sector risk spilling over into broader financial turmoil,” said Julian Evans-Pritchard, head of China economics at Capital Economics.
“With domestic funds increasingly fleeing to safer government bonds and bank deposits, more non-bank financial institutions may face liquidity problems,” he added.
Another major concern is local government debt, which has skyrocketed mainly due to a sharp decline in land sales revenues due to the real estate recession and the prolonged cost of implementing lockdowns due to the pandemic.
Severe fiscal stress at the local level not only poses significant risks to China’s banks, but also strains the government’s ability to boost growth and expand public services.
The Chinese government has so far made clear that it is steadily phasing in stimulus measures, including interest rate cuts and other moves to support the property market and consumer businesses.
But big moves are on the way. Economists and analysts told CNN this is because China is too indebted to grow like it did during the global financial crisis 15 years ago.
At the time, Chinese leaders launched a 4 trillion yuan ($586 billion) fiscal package to minimize the impact of the global financial crisis. But the measures, which have focused on government-led infrastructure projects, have also led to unprecedented credit expansion and a large increase in local government debt, and the economy is still struggling to recover.
“While the current economic downturn also has a cyclical component that justifies more stimulus, policymakers believe that conventional policy strategies will lead to further increases in debt levels that will hurt in the future. They seem to be concerned about that,” he said. Evans Pritchard.
Chinese government policymakers reaffirmed on Sunday that curbing systemic debt risks for local governments is one of their top priorities.
The People’s Bank of China, financial regulators and securities regulators have reportedly pledged to jointly tackle the challenge. statement by the central bank.
Moreover, China faces several long-term challenges, including a demographic crisis and strained relations with major trading partners such as the United States and Europe.
National total fertility rate, average number of births per woman intention Her average lifetime blood pressure hit a record low of 1.09 last year, down from 1.30 just two years ago, according to a recent report by state-run Jiemian.com, citing findings from the National Health Commission.
This means that China’s fertility rate is now even lower than Japan, which has long been known to be an aging society.
Earlier this year, China released data last year that showed its population began to decline for the first time in 60 years.
“China’s aging population poses a significant challenge to its economic growth potential,” analysts at Moody’s Investors Service said in a research report last week.
Declining labor supply and rising health care and social spending could lead to higher budget deficits and higher debt burdens. A shrinking labor force could reduce domestic savings, leading to higher interest rates and lower investment.
“Housing demand will decline in the long term,” they added.
Evans-Pritchard said demographics, along with slowing rural-to-urban migration and geopolitical fissures, are “intrinsically structural” and are largely beyond the control of policy makers. Ta.
“The overall picture is that trend growth has slowed significantly since the pandemic began, and is expected to slow further in the medium term,” he said.