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China’s economic recovery may face a tougher battle than Beijing would have the world believe, thanks to pressures in the real estate sector and “disillusionment” in the banking industry.
“China’s economy has been slowing for quite some time,” Craig Singleton, a fellow at the nonpartisan Foundation for Defense of Democracies, told Fox News Digital. “What we are witnessing now is a rapid economic slowdown.
Economists can’t seem to grasp China’s current economic situation: GDP data showed a sharp slowdown in Q2, but just weeks ago the Hang Seng hit a 3-month high in what some analysts hailed as signs of a recovery.
Larry Hu, the chief China economist at Macquarie in Australia, told Fortune that the economy is “recovering but remains very weak.” He attributed the struggles to the impact of prolonged lockdowns during the pandemic, and China’s zero-covid policy has only further compounded the problem.
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The policy calls for localized lockdowns upon detection of any COVID-19 infections, which has resulted in prolonged lockdowns of major ports and economic centers. Shanghai closed for 60 days in the spring of 2022, measuring a peak of 26,000 cases per day in April. After the lockdown, officials reported just 29 cases on June 1.
Singleton argued that while COVID played a role in the initial problems, China’s slow recovery is the result of “deeper structural, systemic problems.”
“One of them turns out to be … the overextended property market in China by some conservative estimates,” he explained. “China’s real estate sector makes up 30% of China’s GDP, so even small deviations in this market can have a huge impact on China’s wider global domestic product and its wider growth.”
Homebuyers in China have threatened to stop paying mortgages, blaming “stalled” construction work, adding a major wrinkle against any recovery Beijing has registered.
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“We have seen a number of very large defaults by some of China’s largest property developers,” Singleton said. “We are witnessing a growing frustration among Chinese citizens who have put their savings into China’s 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 must meet “reasonable” financing needs of developers and that “all difficulties and problems will be properly resolved,” Reuters reported. Data for the property sector showed a 7% contraction in the second quarter from a year earlier.
Chinese Premier Li Keqiang spoke to 100,000 officials to outline a 33-point plan that includes a $120 billion credit line for infrastructure projects. The World Bank expressed concern that Beijing would revert to “the old game of boosting growth through debt-financed infrastructure and real estate investment.”
“Such a growth model is ultimately unsustainable, and the indebtedness of many corporations and local governments is already too high,” the World Bank wrote, favoring consumer-based incentives instead.
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That economic weakness paints a worrisome picture for Chinese President Xi Jinping as he seeks another, record third term as leader, according to Asia expert and Gatestone Institute senior fellow Gordon Chang. Xi may try to shake things up to show that China remains strong internationally even as it faces these domestic problems.
“Xi Jinping has all the incentives in the world to cause some kind of military mishap overseas,” Chang said, saying Xi could “either invade a neighbor or maybe dangerously intercept an airplane or a ship.”
Chinese President Xi Jinping waves during the closing ceremony of the Beijing 2022 Paralympic Winter Games at the National Stadium in Beijing, capital of China, March 13, 2022. (Photo by Xie Huanchi/Xinhua via Getty Images)
“We don’t know exactly what he would do, but he has a reason to do it,” Chang added. “China is in trouble right now: [Xi]there is a mortgage boycott that is now in 86 cities; boycott of a new supplier; bank runs – it’s just unprecedented.”
Chang suggested that Xi might even try to stir up trouble with India, a neighbor China has clashed with several times in recent years. He also pointed to recent Chinese incursions into Japanese waters, as well as renewed pressure in the South China Sea, which prompted a warning from the US State Department.
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“We know that these are not just smoldering incidents, but some of them can actually lead to a full-scale crisis,” he said.
The Center for Strategic and International Studies wrote that Zero-Covid has “suffered high economic, social and political costs in a remarkably short period”. Analysts at the Center believe the policy has “disrupted manufacturing, supply chains and consumer spending.”
Singleton noted that this had led to record high urban youth unemployment and “widespread” disenchantment in the banking sector. About a fifth of all 16- to 24-year-olds in China are currently unemployed, meaning that less than 15% of recent graduates have been able to find work.
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“There is every indication that China will fall short of its annual economic growth target of 5.5 percent,” Singleton argued. “What we’re starting to realize very quickly, I think, is that the days of China’s rapid economic, economic rise are long gone.”
Peter Aitken is a Fox News Digital reporter with a focus on national and global news.
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