26. October 2021
Hugues Chevalier, Economist
According to data released on October 18 by Beijing, China’s economic growth has slowed more than expected. Indeed, during the 3rd quarter, year-on-year, GDP has decelerated to 4.9%, against 7.9% in the 2nd quarter, the slowest pace since the start of the Covid crisis. Worse, in quarterly variation, the GDP stagnated at 0.2%, according to Capital Economics. The second world economy is beeing confronted with various shocks, cyclical and structural. Household consumption has remained affected by COVID-related restrictions that limited travel and tourism last summer. On the production side, exports remained positive. But companies are facing, after the very sharp rebound of activity, shortages (electronic components among others) and production bottlenecks. In particular, power cuts linked to a shortage of coal (government policy to decarbonize the economy) in more than 20 provinces have caused production to stop for thousands of companies. Despite an increase in coal import quotas and the authorization to increase the selling prices of electricity, coal-fired power plants continue to operate erraticaly. At the same time, and more structurally, the real estate sector is affected by the consequences of the government policy of reducing global debt with a drop in housing starts and sales in recent months. However, this sector accounts directly and indirectly for 30% of the GDP. And the near bankruptcy of Evergrande only adds uncertainty and confusion to an already complicated situation. With the gradual normalization of global consumption, exports are expected to slow down over the next few months and we do not see any rebound in domestic growth for the moment. However, GDP is still expected to grow by 6% this year, leaving time for the authorities to continue lowering the economy’s debt ratio.