China ‘in distress’: Economy suffers ‘rapid’ slowdown as ‘systemic’ problems surface

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China’s economic rebound could face a tougher battle than Beijing would otherwise have the world believe thanks to pressure within the real estate sector and “frustrations” in the banking sector.

“China’s economy has been slowing down for some time,” Craig Singleton, a fellow with the nonpartisan Foundation for Defense of Democracies, told Fox News Digital. “What we’re seeing right now is a rapid economic downturn.”

Economists can’t seem to cope with China’s current economic situation: GDP data showed a sharp slowdown in the second quarter, but just a few weeks ago the Hang Seng hit a 3-month high in what some analysts hailed as signs of recovery.

Larry Hu, Macquarie Australia’s chief Chinese economist, told Fortune that the economy “is on the mend, but remains very weak.” He attributed the difficulties to the impact of prolonged shutdowns during the pandemic, and China’s zero covid policy has only further complicated the issue.

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The policy requires localized lockdowns with the detection of any COVID-19 infection, which has led to the prolonged lockdown of major ports and economic hubs. Shanghai closed for 60 days in the spring of 2022, measuring a peak of 26,000 cases per day in April. After the lockdown, authorities reported only 29 cases on June 1.

Singleton argues that while COVID played a role in the initial unrest, China’s slowing recovery resulted from “deeper structural and systemic issues.”

“One of them happens to be … China’s hyper-leveraged real estate market by some conservative estimates,” he explained. “China’s real estate sector accounts for 30% of China’s GDP, so even small deviations in this market can have an outsized impact on China’s broader global domestic product and broader growth.”

Homebuyers across China have threatened to stop making mortgage payments, blaming “stalled” construction work, adding a serious wrinkle to any recovery Beijing has experienced.

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“We’ve seen a number of very significant defaults from some of China’s largest property construction companies,” Singleton said. “We have seen growing frustration from Chinese citizens who have invested their savings in the Chinese real estate market, seeing it primarily as an investment vehicle or safe investment, and now many of them cannot move into their house. .”

The China Banking and Insurance Regulatory Commission (CBIRC) has insisted that banks must meet developers’ “reasonable” financing needs and that “all difficulties and problems will be properly resolved”, Reuters reported. . Data from the real estate sector showed a contraction of 7% in the second quarter compared to the previous year.

Chinese Premier Li Keqiang has met with 100,000 officials to lay out a 33-point plan that includes a $120 billion line of credit for infrastructure projects. The World Bank has expressed concern that Beijing will turn to “the old playbook of reviving growth through debt-financed infrastructure and property investment”.

“Such a model of growth is ultimately unsustainable, and the indebtedness of many businesses and local governments is already too high,” the World Bank wrote, supporting consumer-based incentives instead.

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This economic weakness creates a troubling picture for Chinese President Xi Jinping as he seeks another record third term as leader, according to Gordon Chang, an Asia expert and senior fellow at the Gatestone Institute. Xi could try to shake things up to show that China remains strong internationally even in the face of these domestic problems.

“Xi Jinping has every reason in the world to cause an overseas military misadventure,” Chang said, saying Xi could “either invade a neighbor or perhaps dangerously intercept a plane or ship.”

Chinese President Xi Jinping salutes 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)

Chinese President Xi Jinping salutes 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 reason to do it,” Chang added. “Right now, China is in distress: [Xi]won the mortgage boycott, which is now in 86 cities; boycott of a new supplier; bank runs – this is simply unprecedented.”

Chang suggested that Xi might even try to stir up trouble with India, a neighbor China has clashed with repeatedly 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 latent incidents, but some of them could actually cause a full-fledged crisis,” he said.

The Center for Strategic and International Studies wrote that Zero-Covid has “demanded high economic, social and political costs over a remarkably short period.” Center analysts say the policy has “disrupted manufacturing, supply chains and consumer spending.”

Singleton noted that this has led to record urban youth unemployment and “widespread” frustration in the banking sector. About a fifth of all 16-24 year olds in China are currently unemployed, which means less than 15% of recent graduates have managed to find a job.

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“Everything indicates that China will be far from reaching its annual economic growth target of 5.5%,” Singleton said. “What we’re starting to realize very quickly, I think, is that, you know, the days of China’s meteoric economic rise are long gone.”

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