China’s latest GDP data has confirmed an economic slowdown
China’s GDP grew by just 4.9% in the recent July-Sept quarter as compared to the same period in 2020. This rate is down from 7.9 % growth in the April-June quarter
Industrial production growth slumped to 3.1 % year on year in September from 5.3 % in August. This growth is the lowest since March 2020, when Wuhan was in lockdown due to the coronavirus pandemic.
The three major reasons for the slowdown in China are-
- Crisis in the real estate sector
- Power supply disruptions
- Coronavirus outbreak
Crisis in the real estate sector
There is a huge economic imbalance in China. Its economy relies disproportionately on the real estate sector for jobs and growth.
The real estate sector in China, valued at $55 trillion, is 4 times larger than China’s GDP. It accounts for around 30 % of its GDP.
Also, 78 % of the wealth of urban China is in housing. Real estate is the most important instrument of savings as capital controls constrain the ability of citizens to invest abroad.
To add to all of this, the real estate sector in China is $5 trillion in debt
Therefore, President Xi Jinping has been trying to rebalance the Chinese economy by reducing its over-dependence on the property sector.
China is trying to limit its borrowings. It is cracking down on debt amassed by the property developers as well as the home-owners
These regulations have put pressure on the sector to reduce its debt. China’s second-largest property developer, Evergrande, is on the brink of collapse. It has $300bn in debt and is unable to repay its investors due to a severe liquidity crunch.
Construction has come to a halt
All in all, the real estate sector is in trouble as the Government is tightening the screws on excessive borrowings. This is the major reason behind the decrease in the GDP growth rate.
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Power supply disruptions
China is dependent on coal for 56.8 % of its total electricity supply
When the world economy started showing signs of recovery from the adverse impact of the coronavirus pandemic, the demand for electricity in China rose due to the rise in exports to the world.
But, the Government has been discouraging investment in the coal sector to reduce its carbon emissions by 2030
Many coal mines have been shut in recent years
The big coal-producing regions have been affected by floods as well
This demand-supply mismatch led to an increase in the price of coal. But, the power generators could not pass on to consumers due to price caps imposed by the Government. Therefore, power stations stopped producing electricity
This forced many factories to shut production due to power outages. It affected industrial output.
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Sporadic covid outbreaks
China has imposed restrictions to contain the sporadic outbursts of delta variant of COVID
Apart from the above, the semiconductor shortage has affected output in the automobile sector.
There are concerns that a slowdown in the Chinese economy can affect the nascent world recovery.
China is a major engine of global growth and is the second-largest economy in the world. India also could see an impact
….the country’s bilateral trade with China has grown nearly 50 per cent in the first nine months of 2021, according to Chinese government data.
According to India’s Commerce Ministry data, China was India’s top trading partner in the April-July period, followed by the US, the UAE, Saudi Arabia and Singapore.
India’s imports from China rose to $68.5 billion in the first nine month of 2021, up 52 per cent from the corresponding period in 2020, according to the China General Administration of Customs data, pushing India’s trade deficit with China to $46.55 billion in the first nine months of 2021, up from $29.9 billion in the year-ago period. India’s total trade with China touched $90.38 billion during the January-September period, and is likely to cross $100 billion by the end of the year. Some of India’s major imports from China include smartphones and automobile components, telecom equipment, active pharmaceutical ingredients, and other chemicals.
//indianexpress.com/article/explained/explained-slide-china-gdp-growth-india-7577753/
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