As growth in the world’s major economies slows due to high inflation, many economists are hoping that China will once again come to the world’s rescue.
But this isn’t 2008, when China’s then-booming economy and massive stimulus from the Beijing government helped Western countries recover from the financial crisis much faster. This time, China’s economic crisis has deepened. The government has abandoned this year’s target of 5.5% GDP growth and Premier Li Keqiang warned last month that there was little appetite for more expansionary policymaking.
Business and consumer activity in the world’s second-largest economy has been hit by Beijing’s zero-COVID policy, which imposed months-long lockdowns on workers in dozens of cities and forced many businesses to close. Chinese leaders are now reluctant to reverse tough policies for fear of a bigger crisis.
China cannot learn to live with COVID
Jacob Günter, senior analyst at Berlin’s Mercator Institute for China Studies (MERICS), said: “China has not lived with COVID as effectively as the rest of the world. So if the virus suddenly spreads to the country, there will be economic chaos. “There is no inherent immunity – because they have refused to import mRNA vaccines – they don’t have a very advanced healthcare system and a lot of vaccine hesitation.”
Worse, the government’s recent crackdown on developer debt triggered a real estate crash that pushed China Evergrande, one of the country’s largest developers, to the brink of bankruptcy.
Chinese homebuyers have stopped mortgages on work-in-progress, bank loans for home purchases have declined for the first time in a decade and the volume of residential floors — a measure of new construction — nearly halved in the second quarter.
“Property accidents are a big problem [compared with the zero-COVID policy]said Craig Botham, an economist at China+ research house Pantheon Macroeconomics. . Families, banks and local governments have damaged balance sheets.”
China’s real estate developers rely on down payments to fund future real estate projects
China’s central bank refused to provide further monetary stimulus until inflation and the pandemic are under control, cutting interest rates this week, lower-than-expected growth in industrial production and retail sales and a year of oil demand in July. down 10% year-on-year.
China cuts while world hikes rates
“It’s the opposite of what’s happening all over the world where countries are increasing their tariffs,” Gunter told DW. “China has the opposite problems that we have in the United States and Europe,” it said, adding that Chinese consumers with no income are afraid to spend for fear of being quarantined.
Botham said the recent rate cut is unlikely to make much of a difference to economic growth for two reasons.
“On the one hand, they only have a direct impact on banks’ financing costs without having to be passed on to the real economy. Second, and more importantly, the demand for credit has fallen off a cliff. I doubt PBOC [People’s Bank of China] It felt like it had to do something, even though it knows whatever it does will have the smallest effect.”
With further stimulus likely, the central government has sought to divert attention from Beijing by urging regional governments to do more to stabilize growth and boost job opportunities, drawing skepticism. met.
“Local government has a lot of loopholes and there’s not much they can do,” Botham warned. “We need the central government to intervene. The Pantheon Macroeconomics analyst called for a shift in action from the supply side to the demand side.
In May, Beijing announced 50 policy measures to help regions recover from the lockdown. These included tax breaks for businesses and consumers, as well as other subsidies. Li this week visited Shenzhen’s Southern Technology Center, which he said was an economic fact-finding tour ahead of this month’s Politburo meeting.
Pressure on Xi to increase demand
China’s leadership is already under pressure as a state-backed newspaper ran a front-page report this week calling for new pro-development policies. Quote from Wen Bin, chief economist at China Minsheng Bank, financial news Said Beijing should use more stimulus to boost demand. The paper also called for more industrial policies and real estate market policies that would improve production and consumption.
Resistance to fresh stimulus may ease over the next few months as President Xi Jinping seeks re-election as China’s leader by the 20th Chinese Communist Party National Congress. According to the Hong Kong newspaper, the summit is scheduled to take place in November ming paoXi’s third term is likely to be approved.
Botham told DW that unlike in 2008, when China’s 4 trillion yuan in monetary stimulus helped stabilize the global economy, the impact of any future expansionary Beijing policy would be limited. is likely. But he said they could help ease the cost-of-living scourge that plagued development in the West.
“You can say that with certainty [China] Will not save the world economy in this cycle. Hopes of a new commodity super cycle driven by China are dashed. However, a focus on supply-side measures and weakness in Chinese demand will see China exports to the rest of the world deflate and even deflate over the next 12 months, which will help calm global inflation. .
Edited by: Hardy Groupner