China ‘in distress’: economy suffering from ‘rapid’ slowdown amid ‘systemic’ problems

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China’s economic rise could face a bigger battle than Beijing would like the world to believe, thanks to pressures from within real estate sector and “frustrations” in banking.

“China’s economy has been slowing down for quite some time now,” Craig Singleton, a fellow at the non-partisan Foundation for the Defense of Democracies, told Fox News Digital. “What we are seeing right now is a rapid slowdown in economic growth.”

Economists seem to be confused The current economic situation in China: GDP data showed a sharp slowdown in the second quarter, but just a few weeks ago the Hang Seng reached a 3-month high, which some analysts hailed as signs of recovery.

Larry Hu, chief Chinese economist at Macquarie Australia, told Fortune that the economy is “on the mend but remains very weak.” He attributed the difficulties to the impact of prolonged lockdowns during the pandemic, and China’s anti-coronavirus policies have only further complicated the problem.

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The policy requires localized locks with detection of any COVID-19 infections, which led to a long-term isolation of major ports and economic centers. In the spring of 2022, Shanghai went into lockdown for 60 days and peaked at 26,000 cases a day in April. After the lockdown, officials reported only 29 cases on June 1.

Singleton argues that while COVID played a role in the initial problems, the slowdown in China’s recovery was the result of “deeper structural, systemic problems.”

“One of them, by some conservative estimates, is the hyper-lending real estate market in China,” he explained. “China’s real estate sector accounts for 30% of Chinese GDP, so even small deviations in this market could have a huge impact on China’s broader global domestic product and broader growth.”

Home buyers across China threatened to stop mortgage paymentsblaming “stalled” building work that has added a serious wrinkle to any recovery Beijing has recorded.

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“We have seen a number of very large defaults by some of the largest Chinese construction companies,” Singleton said. “We are seeing growing frustration on the part of Chinese citizens who have invested their savings in the Chinese real estate market, seeing it primarily as an investment vehicle or a safe investment, and now many of them are unable to move into their homes. .”

The China Banking and Insurance Regulatory Commission (CBIRC) insisted that banks meet developers’ “reasonable” funding needs and that “all difficulties and problems will be properly resolved,” Reuters reported. Real estate sector data showed a 7% decline in the second quarter compared to the previous year.

Chinese Premier Li Keqiang spoke to 100,000 officials to lay out a 33-point plan that included a $120 billion credit line for infrastructure projects. The World Bank expressed concern that Beijing will turn to “the old scheme of accelerating growth through debt-financed infrastructure and real estate investment.”

“This growth model is ultimately unsustainable, and many corporations and local governments are already indebted too much,” the World Bank writes, instead supporting consumer stimulus.

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According to Asia expert and Gatestone Institute senior fellow Gordon Chang, this economic weakness paints a worrying picture for Chinese President Xi Jinping as he seeks another, record-breaking third term as leader. Xi may try to shake things up to show that China remains strong on the international stage despite domestic problems.

“Xi Jinping has every reason in the world to make some kind of military adventure abroad,” Chiang said, noting that Xi could “either invade a neighboring country or possibly intercept a plane or ship dangerously.”

Chinese President Xi Jinping waves during the closing ceremony of the Beijing 2022 Winter Paralympic Games at the National Stadium in Beijing, China's capital, 13 March 2022.  (Photo by Xie Huangchi/Xinhua via Getty Images)

Chinese President Xi Jinping waves during the closing ceremony of the Beijing 2022 Winter Paralympic Games at the National Stadium in Beijing, China’s capital, 13 March 2022. (Photo by Xie Huangchi/Xinhua via Getty Images)

“We don’t know exactly what he would have done, but he has his reasons,” Chang added. “Now China is in distress: [Xi]mortgage boycott, which is now in 86 cities; boycott a new supplier; Bank raids are simply unprecedented.”

Chiang suggested that Xi might even try to create problems with India, a neighbor with which China has clashed several times in recent years. He also pointed to China’s recent incursions into Japanese waters, as well as renewed pressure in the South China Sea, prompting a warning from the US State Department.

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“We know that these are not only smoldering incidents, but some of them can lead to a full-blown crisis,” he said.

The Center for Strategic and International Studies wrote that Zero-Covid “incurred high economic, social and political costs in a remarkably short period.” Analysts in the center believe that this policy “undermined production, supply chains and consumer spending.”

Singleton noted that this led to record high unemployment among urban youth and “widespread” frustration in the banking sector. About one-fifth of all young people aged 16 to 24 in China are currently unemployed, meaning less than 15% of recent graduates have been able to find work.

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“There are all indications that China will miss its annual economic growth target of 5.5%,” Singleton said. “I think we’re very quickly beginning to realize that the days of China’s booming economy are long gone.”