2023-07-23 09:00:00
The Chinese economy showed more signs of weakness in the second quarter of this year 2023, as the country’s gross domestic product expanded by only 0.8 percent during the period from April to June, compared to the previous quarter, according to Wen News, in the topic that I translated today.
According to observers, in addition to the size of signs of weakness, what is more worrying is that youth unemployment has reached a record high. Recent data shows that the economy has lost ground to growth expectations and that consumers continue to remain cautious.
as a result; Chinese policymakers are under increasing pressure to pass a stimulus package for the world’s second largest economy. The main clouds over China’s economy are summarized in 6 reasons:
slow consumption
For nearly 3 years, strict policies to prevent the spread of the coronavirus have resulted in frequent lockdowns, fear of quarantine, and other harsh sanitary measures. When restrictions were lifted at the end of 2022, millions flocked to restaurants, shopping malls and long-awaited vacations.
However, this optimism did not last, as the recovery’s momentum ran out and the labor market came under pressure. Moreover, one in five young people is unemployed. According to China’s National Bureau of Statistics, the unemployment rate among Chinese youth jumped to a record high of 21.3 percent in June, and urban unemployment remained at 5.2 percent.
Real estate crisis
The real estate sector is one of the pillars of the Chinese economy, and real estate has long been seen as a safe bet for the Chinese middle class seeking to grow their wealth. Demand has driven up real estate prices, while developers have expanded at breakneck speed thanks to generous bank loans. But with real estate debt reaching unsustainable levels, authorities pushed to rein in this in 2020. Since then, developers’ access to credit has been drastically reduced. The weaker entities are struggling to complete their projects, which has exacerbated a crisis of confidence with potential buyers, driving down prices.
And the Chinese central bank decided to extend its support to developers, in particular by extending the repayment of loans, until the end of 2024. The decision came following officials cut interest rates last month. Analysts say the measures are not enough to save the sector.
Fear of shrinkage
For several months prices in China have remained roughly flat, while on paper this may sound like a good thing for purchasing power, decline and deflation will be a long-term threat. Instead of spending, consumers delay buying in the hope of lower prices. In the absence of demand, companies reduce production, freeze hiring or lay off employees, and agree to further price cuts to liquidate their inventory. Hence, this affects profitability as corporate costs remain the same.
Chinese trade is under threat
China, long described as the workshop of the world, remains highly dependent on exports, which makes it vulnerable to changes in the global economy. The risk of recession in the United States and Europe, along with inflation, is a factor in the weakening of international demand for Chinese products. In June, exports declined for the second month in a row.
political tensions
Chinese President Xi Jinping seeks to decipher his country’s economy and remove obstacles, in order to overcome political tensions, as tensions between China and the United States have hurt economic expectations. The United States is tightening restrictions on Chinese semiconductor exports, and is pressing allies to do the same. Recently, a Chinese customs spokesperson blamed foreign forces having a direct impact on China’s trade.
spending by local authorities
Among the factors affecting the Chinese economy is also the financial resources of some local authorities.. After three years of astronomical spending on combating Covid, this spending has declined, and the real estate crisis has deprived them of a major source of real estate income.
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