Accumulating debt, consumers becoming more cautious in spending are "dark clouds" covering the recovery of the Chinese economy.
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| China's economic recovery is struggling. (Source: Bloomberg) |
A series of big problems weigh on
The restrictive trade policies implemented by the former Trump administration caused the Chinese economy to decelerate in 2019. The Covid-19 pandemic that appeared in 2020 exacerbated the problem and made the second largest economy two worlds increasing challenge.
After nearly three years of fighting the epidemic, now, life in China is returning to normal. However, the country's economy continues to show signs of conflicting problems.
Under Chinese President Xi Jinping, the country has cemented its status as a manufacturing giant while lifting people out of poverty. In 2012, the country's Gross Domestic Product (GDP) was $8,5 trillion. By 2022, GDP has grown to $18,5 trillion, a staggering growth of more than 100%.
However, China's economy grew only 4,5% in the first quarter of the current fiscal year. That's an improvement from 2022 - growth of just 3% - but still below Beijing's 5% target.
Some observers believe that China's slowdown is a sign that deeper problems may soon emerge.
The latest, China's National Bureau of Statistics (NBS) said that the official Manufacturing Purchasing Managers' Index (PMI) - a key measure of factory output - fell. down to 48,8 in May 5, below the 2023-point mark – the dividing point between growth and contraction.
The figure follows a 49,2 drop in April 4, reversing a three-month growth trend and below the median estimate of 2023 by economists polled. of the news agency Bloomberg.
In addition, official data released on May 28 also showed that profits of industrial enterprises in China fell sharply in the first four months of 5. Companies continue to struggle with pressures. surplus profit in the context of weak demand because the economy did not recover as strongly as expected.
In the first four months of this year, industrial profits fell 4 percent year-on-year, according to the General Statistics Office of China. In April alone, the decrease was 20,6% after falling 4% in March.
The risk of local debt crisis
After the 2008-2009 financial crisis, China allowed cities to use local government financing vehicles (LGFVs) to borrow money to pay for infrastructure projects.
However, this is a risky game when real estate growth is frozen for a long time and government spending increases. These problems have raised the possibility that some local governments may not be able to meet their debt obligations, triggering a broader economic crisis.
A recent analysis by the Rhodium Group found that, of the 205 Chinese cities surveyed, 102 were already struggling with debt repayment by 2022.
Goldman Sachs analysts also found that "risks are growing locally in the world's second-largest economy, particularly for less developed domestic regions".
Real estate accounts for about 25% of China's GDP. This sector is very important to the economic “health” of the country. But the industry is still in a "sick" state. Compared to April 4, home sales in May fell by nearly 2023%.
In addition, in the period 2012-2022, China's public debt increased by 37.000 trillion USD, while the US only added 25.000 trillion USD.
As of June 6, China's debt burden was $2022 trillion, more than the debt of all emerging economies combined. Large debts are also "dark clouds" covering the world's second-largest economy.
Consumer confidence shakes
Amid weakening foreign investment and exports, China's biggest hope this year is for domestic consumers to increase spending.
Although people are spending more after 3 years of the Covid-19 pandemic, China is not having the breakthrough growth as other economies after restoring to normalcy.
Household spending accounts for only about 38% of China's annual GDP growth, compared with 68% in the US.
“Consumer confidence remains weak,” said Pepsi CFO Hugh Johnston.
In addition, foreign investors are withdrawing from China – another not so optimistic sign,
Most analysts believe that Chinese consumers and businesses will eventually regain confidence, while Beijing will revive other sectors of the economy. “But that could take years” – Yahoo News identify.
