BEIJING: Data from China on Thursday (Sep 7) showing falling exports fanned more fears about a slowdown in the world’s second-biggest economy, which has struggled with its post-COVID recovery.
Governments and markets alike are concerned about these indicators – the size of China’s economy and its connections with the rest of the world mean any ups and downs are felt far and wide.
Here is a rundown of the problems facing China’s economy, and why analysts believe Beijing is not doing enough to fix them:
WHY IS DEMAND SLOWING?
The abandonment of tight pandemic restrictions in December set off a gradual resumption of consumer activity in China as people started dining out, shopping and using public transport more frequently.
But the highly anticipated economic rebound was weaker than expected and did not reach all sectors – industrial production, for example, is still struggling.
And a post-COVID rally has since completely run out of steam.
As many other major economies grapple with inflation, consumer prices in China fell by 0.3 per cent year-on-year in July to enter deflation – a sign of sluggish demand.
Youth unemployment rose so high in June that authorities suspended the publication of that data, while traditional growth engines such as exports, real estate and consumption remain stalled.
Analysts say these trends are increasingly pushing China’s annual growth objective of around five per cent out of reach.
WHY THE DOWNTURN?
Property development and linked industries have been a key pillar of the Chinese economy in recent years, providing a sizeable chunk of its GDP.
But the sector is in a deep crisis.
Many leading developers including Evergrande and Country Garden have come under increasing financial pressure lately, with their astronomical levels of debt bringing bankruptcy concerns to the fore.
Any implosion of these firms could have dire consequences for China’s financial system, resulting in vast amounts of unfinished housing, mass layoffs, and tens of thousands of people unable to recover their funds.
And the property turmoil is fuelling doubt among potential buyers, adding further pressure to developers’ budgets.
The economy is also feeling the effects of sluggish global demand, which has dragged on Chinese exports, as well as flagging domestic household spending.
Source: CNA
