2023-08-28 19:16:15
No one can say that the Chinese authorities are sitting back as their economy collapses. No, President Xi Jinping’s party is trying everything to save the day, from lower central bank interest rates to tax cuts and promises of more stable economic policies.
Only it doesn’t really work so far, and the rest of the world notices that too. Every time the Chinese economy rises by one percentage point, the International Monetary Fund (IMF) calculated at the beginning of this year, growth in the rest of the world rises by 0.3 percentage point.
End of ultra-strict corona policy
When the IMF report was written in February, expectations were still high. Shortly before, the Communist Party had said goodbye to its ultra-strict corona policy, leading economists to expect a huge upswing in the economy.
Now, six months later, hardly a week goes by without new disappointing news regarding the Chinese economy. Then once more, growth is considerably lower than expected. Then once more unemployment rises further among young people, or it shows once once more how bad the real estate sector is doing.
Share price drop of 87 percent
For a long time, large project developers drove Chinese growth, until a few years ago they were drowning in all the debt they had incurred. The most famous example of this, real estate giant Evergrande, made the news once more on Monday: the stock price had collapsed by no less than 87 percent following trading in Evergrande shares had been halted for a year and a half.
More large real estate parties are now in trouble, competitor Country Garden was also recently unable to meet interest payments on time. Such problems affect Chinese employment, especially in construction or the raw materials sector.
Surrounding countries in particular feel the pain
Remarkably enough, for the rest of the world there are not only disadvantages to the ailing Chinese economy. Certainly, surrounding countries are especially feeling the pain. In South Korea and Thailand, central bankers are already lowering the expected growth figures in their own countries due to the disappointing growth in China.
In the West, the effects are more twofold. A disadvantage is the declining exports from European countries to China, now that there is less demand in that country. According to ING economist Bert Colijn, the time when the West mainly bought stuff from China, and not the other way around, is now over.
German and Dutch exports are falling
Germany in particular exports a lot, but the Netherlands also does, adds Rabobank economist Teeuwe Mevissers. Within the eurozone, these two countries in particular will notice the drop in demand from China, he thinks.
Colijn attributes the falling demand among Chinese companies and consumers, among other things, to the relatively meager corona support that the Chinese government has allocated to consumers. While many Western countries experienced a true resurgence following corona, with consumers who had a lot of money left over and also spent it en masse, this is not happening in China.
Partly because of this, China imported no less than 12 percent less last July than in the same month a year earlier, and German and Dutch companies might therefore sell less of their goods there.
Large stocks
Against these disadvantages there are also advantages of the disappointing growth in China. For example, Western countries are still struggling with relatively high inflation, and the problems in China make it cheaper to get stuff from there. Many Chinese companies have large stocks that they cannot get rid of, says Mevissers, which causes export prices to fall.
Or take energy prices. As a major consumer, China has a lot of influence on the oil price. Although it has risen slightly recently, the oil price would have been much higher if the industrialized country had grown strongly economically.
Low gas price
Something similar is happening with the gas price. Six months ago, there were still concerns that China would buy up a lot of liquefied gas (LNG) later this year, making it a major competitor for European countries such as the Netherlands. That is not the case for the time being and that keeps the gas price low.
How exactly the balance works out, whether Europe on balance is suffering or benefiting from the situation in China, will only become clear later.
Read also:
The land of promised growth? No, China mainly hopes that not too many companies leave
Foreign entrepreneurs are disappointed: China’s economy is growing much slower than expected. The country is therefore trying to keep them on board.
1693406067
#Chinas #failing #economy #benefit #West
