Daily Management Review

Power Shortage And Property Market Issues Slows Down Chinese Economy


Power Shortage And Property Market Issues Slows Down Chinese Economy
Power shortages, issues with supply chains, and major issues in the property market of the country resulted in China’s economic growth happening at its slowest pace in a year during the third quarter. This has now pressurized policymakers to take more measures to prop up the recovery of the economy from the pandemic hit.
In the July-September period, China reported a 4.89 per cent year on year growth in the gross domestic product (GDP), according to data released on Monday which is the slowest for the economy since the third quarter of 2020 and much lower than analysts’ expectations.
The severe debt repayment crisis at China Evergrande Group, the ongoing delays in supply chains, and a critical electricity shortage have all hit the second-largest economy of the world, sending the country’s factory output to its lowest level since early 2020, when severe and strict Covid-19 curtailments were imposed.
"The domestic economic recovery is still unstable and uneven," said National Bureau of Statistics (NBS) spokesperson Fu Linghui at a briefing in Beijing on Monday.
Thanks to effective virus containment and strong overseas demand for China's manufactured goods, the country's economy has made a remarkable recovery from last year's pandemic slump. However, after a blistering 18.3 per cent growth rate in the first quarter of this year, the recovery has slowed.
"In response to the ugly growth numbers we expect in coming months, we think policymakers will take more steps to shore up growth, including ensuring ample liquidity in the interbank market, accelerating infrastructure development and relaxing some aspects of overall credit and real estate policies," said Louis Kuijs, head of Asia economics at Oxford Economics.
Analysts in a Reuters poll had expected China’s GDP to grow by 5.2 per cent in the third quarter.
The yuan and most Asian stock markets fell as a result of the disappointing figures, which fueled worries among investors about the global economy's recovery.
As the major developer China Evergrande Group struggles with more than $300 billion in debt, global concerns about a possible spillover of the credit risk from China's property sector into the wider economy have grown.
Fearing that a persistent property bubble will jeopardize the country's long-term rise, Chinese leaders are likely to maintain tough restrictions on the sector even as the economy slows, though there could be some easing of a few tactics as required, according to policy sources and analysts.
According to NBS data, new construction starts fell for the sixth month in a row in September, which is the longest streak of monthly declines since 2015, as developers hit by a cash crunch cut back on investment and paused projects due to tighter borrowing limits.
On the other hand, power rationing caused by coal shortages, as well as environmental restrictions on heavy polluters such as steel plants and floods this summer also severely impacted the industrial sector of China.
There was a 3.1 per cent year on year rise in the overall industrial output in September and this was the slowest pace of growth since March 2020, when the pandemic was in its first wave.
For the fifth straight month, there was a drop in aluminium output in September, while daily crude steel output also touched its lowest level since 2018.
There was however a 4.4 per cent growth in retail sales, which mucked the negative trend, and was more than forecasts and the 2.5 per cent growth in August. The surveyed nationwide jobless rate fell from 5.1% to 4.9%.
"Most of the (negative) factors are policy-driven... the economy is having a lot of pain points and these pain points are not going away soon because policies are here to stay, and therefore it will continue into 2022," said Iris Pang, chief economist for Greater China at ING.
Growth slowed to 0.2 per cent in July-September quarter, lower than a downwardly revised 1.2 per cent growth in the previous quarter.
Despite slowing growth, there were ample tools at the hands of China for dealing with economic challenges and expressed confidence in meeting full-year development targets, Premier Li Keqiang had said last week.
The economy will grow by 8% this year, Yi Gang, the governor of the People's Bank of China, said on Sunday.
"At present, China's fiscal strength is continuously increasing, and there is still relatively big room for monetary policy," said the NBS's Fu.