The Chinese economy grew at its slowest pace in the summer since early 2023. The second-largest economy grew 4.6 percent in the third quarter from the same period last year — down 0.1 percent from the previous quarter, the Bureau of Statistics in Beijing reported on Friday. Analysts therefore doubt Beijing will hit its growth target of five percent this year.
The People’s Republic announced earlier in the day that it would provide more than 500 billion euros in loans to the ailing real estate market. On the one hand, it aims to complete the construction of unfinished projects and renovate one million existing buildings. Interest rates on existing real estate loans were earlier reduced and rules for buying homes were relaxed.
Economic data shows a crisis
With this aid package, the Chinese government is trying to restore confidence among consumers. There is uncertainty as big property developers are unable to service their borrowers and complete the flats that were already bought a few years ago. After all, the Chinese not only lost money in the real estate crisis, but also lost faith in the government, observers say.
The value of real estate, where many Chinese have invested their savings, has plummeted. The crisis in the sector, considered a guarantee of growth for years, also weakened consumer sentiment in China. Another reason for the weak recovery of the world’s second-largest economy after the coronavirus pandemic is that many people are now saving their money.
Weaker consumer behavior is also reflected in lower inflation: it was 0.6 percent in August and 0.4 percent in September. Export and import figures also fell short of expectations. Geopolitical tensions and trade conflicts, particularly with the US and the EU, are causing headwinds here.
High unemployment among children
In addition, unemployment is on the rise – especially among young people. The latest unemployment rate among 16- to 24-year-olds rose to 18.8 percent, according to official figures.
In addition, due to the one-child policy, the country is grappling with massive demographic change, which will further slow down the economy’s potential in the future, explained VP Bank Chief Economist Thomas Kitchell. “Government aid may lead to slightly higher growth rates in the short run, but growth potential is headed downward.”
A critique of loose measures
In markets, investors are looking for concrete steps from the central government in Beijing. Analysts are of the opinion that the real estate problem in particular cannot be solved by lax measures. For example, Max Zenglein, an economist at the China Institute MERICS in Berlin, sees the measures as stabilizing rather than stimulating growth.
Already last week the government had announced the issuance of special government bonds to help state-owned large commercial banks, but failed to provide concrete figures. According to media reports, this could include additional loans of 774 billion euros over a three-year period.
“Politics Affects Money”
However, the pressure is now on banks and local governments to distribute loans. Ultimately, the channeling of capital to industrial enterprises depends on the state-controlled banking system. This is one of many economic problems, as “Foreign Affairs” wrote in an analysis: “In the West, money influences politics, but in China it’s the other way around: politics influences money.”
While the system strengthens political stability by embedding the party hierarchy in every sector of the economy, to solve its economic problems, China must “clearly establish a new balance between investment and consumption.”
“FA”: Economic Strategy “Failure”
The current decade-long economic strategy, which prioritizes industrial production above all else, has in any case failed because this approach has led to enormous structural overcapacity over time.
“Simply put, China manufactures many important economic sectors or foreign markets can sustain production of solar cells. An example: “Chinese factories are now able to produce twice as many solar cells.” Each year the world must produce what it can use.
As a result, the Chinese economy runs the risk of falling into a vicious circle of massive debt mountains, falling prices, bankruptcies, factory closures and ultimately job losses. So analysts suspect that borrowing more is the right way to escape this vicious circle.
