Hong Kong’s Hang Seng index slipped into bear market territory on Friday, falling over 20 percent from its January highs. Large Chinese companies are also performing poorly, with most of them hitting nine-month lows. The Chinese property market has been facing massive problems for several weeks, and there is no sign of improvement in the near future, according to CNN.
Unemployment among young people in China is at such high levels that the government has stopped publishing this data. China’s yuan recently reached an 18-year low, and the central bank has cut one of its key interest rates for the second time in three months.
Consumer spending in China has been weak for a long time, and Chinese companies are struggling with a weaker currency. The Chinese central bank has had to intervene to address these issues, cutting its one-year loan prime rate (LPR) by one-tenth of a percentage point to 3.45 percent.
A few weeks ago, Chinese statisticians announced that the country’s economy had entered deflation in July, with consumer prices falling by 0.3 percent. This has prompted the central bank to gradually lower interest rates, while other major economies are raising them.
The current economic situation in China is very different from what it was around 2008. During the global financial crisis, Chinese politicians implemented the largest stimulus package in the world, which helped the country become the first major economy to recover from the economic downturn.
However, recent developments in the Chinese economy have been far from positive. One example is the situation among Chinese developers. Country Garden Holdings, a major developer, has seen a record decline in its stock value, dropping by 60 percent since the beginning of the year.
It was recently revealed that the company may have incurred a loss of $7.6 billion in the first half of this year, compared to a profit of $265 million in the previous year. Another major developer, Evergrande, has filed for protection from creditors in the United States, with debts amounting to $300 billion. It appears that the financial problems of these large Chinese developers are spreading to the investment trust sector.
Julian Evans-Pritchard, Head of Economics at Capital Economics, warned that the potential losses in the Chinese property sector could lead to broader financial instability.
Investment banks are starting to react to the problems in the Chinese economy by revising their growth forecasts for the year. It now seems that China’s economy will grow by less than 5 percent, which would be a below-average result compared to previous years.
The high level of debt in local governments is also a major problem in China. Due to the current property crisis, many provinces and cities are economically dependent on land sales. This debt poses a significant risk to Chinese banks and limits the government’s ability to stimulate economic growth.
The high level of debt in China is a problem that analysts believe will limit its ability to stimulate the economy, similar to what happened fifteen years ago. At that time, the government introduced a fiscal package worth 4 trillion yuan.
China is also facing a demographic crisis, with its birth rate steadily declining in recent years. In 2022, the country’s birth rate reached a record low of 1.09 children per woman, surpassing even nearby Japan, which has been experiencing significant economic stagnation.
At the beginning of this year, China released a forecast that suggests its population will start to decline in 2022, which could have significant implications for the country’s economic future.Hong Kong’s Hang Seng index slipped into bear market territory on Friday, falling over 20 percent from its January highs. Large Chinese companies are also performing poorly, with most of them hitting nine-month lows. The Chinese real estate market has been facing massive problems for several weeks, and there is no indication that it will change in the near future. This was reported by CNN.
Unemployment among young people in China is at such high levels that the government has stopped publishing this data. China’s yuan recently reached an 18-year low, and the central bank lowered one of its key interest rates for the second time in three months on Monday.
Chinese consumer spending has been weak for a long time, as businesses continue to struggle and the real estate market faces one problem after another. This is why the Chinese central bank had to intervene and lower the one-year loan prime rate (LPR) by one-tenth of a percentage point to 3.45 percent.
A few weeks ago, Chinese statisticians announced that the country’s economy had entered deflation in July. Consumer prices fell by three-tenths of a percent. This is why the central bank has been gradually lowering interest rates, at a time when other major economies are doing the opposite.
“What is happening in China?”
The current economic situation is very different from what was happening around 2008. During the global financial crisis, Chinese politicians implemented the largest stimulus package in the world. Thanks to this, China was the first major economy to recover from the economic downturn.
However, the current economic development in China has not been positive in recent weeks. This is evident in the situation among Chinese developers. Country Garden Holdings, a major developer, has experienced a record drop in stock value due to financial problems. Since the beginning of this year, the decline has reached 80 percent.
A few days ago, it was revealed that the company may have incurred a loss of $7.6 billion in the first half of this year, equivalent to about 166.5 billion Czech crowns. The financial problems of Country Garden Holdings are surprising, as the company reported a profit of $265 million last year.
Another major Chinese developer, Evergrande, has also filed for protection from creditors in the United States. The company’s debt amounts to $300 billion. It also appears that the financial problems of large Chinese developers are gradually spreading to the investment trust sector.
“There is a risk that any further losses in the Chinese real estate sector could spill over into broader financial instability,” said Julian Evans-Pritchard, Head of China Economics at Capital Economics, to CNN.
“Analysts lower estimated growth”
Investment banks are starting to react to China’s problems by adjusting their original forecasts for economic growth this year. It now appears that China’s economy will grow by less than five percent, which would be a very below-average result compared to previous years.
“We are reducing our original forecast for China’s real gross domestic product growth. Foreign demand has weakened, and the real estate market has experienced an even greater decline. Political support in China has also been lower than expected,” wrote UBS analysts about the current situation in China.
“Local government debt”
Another huge problem in China is the high debt of local governments. Due to the current real estate crisis, many provinces and cities are economically dependent on land sales. This debt is a major risk for Chinese banks and also limits the overall ability of the government to stimulate economic growth.
China’s high debt is a problem that, according to analysts, limits its ability to stimulate the economy, similar to what happened fifteen years ago. At that time, the Chinese government introduced a fiscal package worth 4 trillion yuan.
Chinese policymakers are likely concerned that any further increase in debt levels could backfire in the future, said analyst Evans-Pritchard to CNN.
The demographic situation in China is also a huge problem. The birth rate in China has been steadily declining in recent years. In 2022, it reached a record low of 1.09 children per woman, surpassing nearby Japan, which has been experiencing significant economic stagnation in recent years.
At the beginning of this year, a forecast was even published, which indicates that China’s population has started to decline for the first time in six decades. The aging population in China is a major challenge for its potential economic growth, as confirmed by analysts at Moody’s Investors Service.
What are the implications of China’s high level of debt and economic challenges on its ability to stimulate economic growth in the face of a declining birth rate and aging population
Oblems by revising their growth forecasts for the year. It is now expected that China’s economy will grow by less than 5 percent, which is below the average of previous years.
Another major issue in China is the high level of debt in local governments. Many provinces and cities rely heavily on land sales to generate revenue, and this debt poses a significant risk to Chinese banks and limits the government’s ability to stimulate economic growth.
China is also facing a demographic crisis, with the birth rate steadily declining in recent years. In 2022, the country’s birth rate reached a record low of 1.09 children per woman, surpassing even nearby Japan.
The declining birth rate and aging population could have significant implications for China’s economic future, especially considering the country’s already high levels of debt and economic challenges.
Overall, the current economic situation in China is far from positive. The real estate market is facing massive problems, unemployment among young people is high, consumer spending is weak, and the government is struggling to stimulate economic growth. These challenges, coupled with the high levels of debt and demographic issues, are causing concerns about China’s economic future.
It’s disheartening to see the challenges China is facing, but I believe they have the resilience to overcome them and come out stronger in the long run.
China’s economic troubles are causing global concerns, and it’s crucial for the government to take swift and effective measures to stabilize the situation and restore confidence in the market.