Pressure on President Xi: Evergrande and Energy Shortages Slow Economic Growth

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China’s economic recovery after Covid is slowing down amid mounting problems in the real estate sector and ongoing power shortages.

 

China’s GDP grew 4.9 percent year-on-year in the third quarter, well below last quarter’s 7.9 percent. The Chinese National Bureau of Statistics announced this today.

China fared much better economically than the rest of the world in 2020. After a rapid contraction at the start of the corona crisis, the country’s economy also recovered rapidly. However, this year the recovery is more complicated. The troubles put additional pressure on President and party leader Xi Jinping, who is in the last year of his two terms and pursuing a third term against political tradition. Xi wants a Chinese economy that is less debt-driven, but that transition is partly at the expense of economic growth.

The disappointing growth figure is mainly caused by problems in the real estate sector, accounting for about a quarter of China’s GDP. Stricter debt regulation threatens major Chinese property developer Evergrande to go bankrupt, causing major turmoil in the Chinese housing market. As a result, home sales fell by 16.9 percent in September compared to a year earlier.

China’s economy was also hit by ongoing power shortages, which caused factories to shut down or run at half-power in several parts of the country. In addition, there was an impact from rising raw material prices and from small relapses of covid, which immediately led to severe measures in China and, thus, disruptions to the local economy.

According to analysts, Beijing will not immediately switch to large-scale stimulus, as the government target of 6 percent economic growth by 2021 can still easily be met. China is still on track to reach 8%. However, more measures are expected to stabilize the property market and energy supply. For example, the previously tightened rules for mortgages were relaxed again last Friday to stimulate home sales.

In a speech last Friday, Prime Minister Li Keqiang sounded confident. “Growth level has levelled off somewhat,” he said. “But for the full year, we have the confidence and ability to meet our overall development goals.”

On Sunday, Chairman of the Central Bank of China Yi Gang said that the bank would continue to follow a “cautious” policy. “Growth momentum has diminished somewhat, economic growth has slowed down a bit, but the course of economic recovery remains unchanged.”

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