China’s GDP grew by just 0.8% in the second quarter. It expanded by 6.3% over the same quarter last year, but that was when lockdowns were in force, and numerous cities were closed down. So just how much trouble is the Chinese economy in, and can we expect a strong rebound?
Source: Trading Economics
China’s property sector is proving to be a major drag on the economy; investment has plunged and house prices have flatlined. Last week Evergrande, the property developer that sparked a crisis when it defaulted on its debt, said it lost USD81 billion in 2021 and 2022 – not small change!
But there are other reasons causing the weak economic recovery. As addressed previously, China’s exports are suffering from weak demand in advanced economies where demand has shifted from goods to services. This has constrained China’s economy, which accounts for almost a third of the world’s manufacturing output.
Second, consumer confidence in China is weak. Although savings built up during the pandemic, retail sales have disappointed. A fall in China’s housing values has made homeowners and property investors feel poorer: new home prices could record their longest period of falls since records began in 2011. Unemployment among China’s graduates is extremely high, with youth unemployment at 20%.
Lastly, business investment is depressed. President Xi Jinping’s crackdown on tech firms and geopolitical tensions with the US have exacerbated uncertainty and increased “re-shoring” trends. Private fixed-asset investment shrank 0.2% in the first six months of the year.
Despite the gloom, most analysts still expect China’s economy to grow about 5% for the year, which means China will still drive the global economy. But hopes rest on expectations that China’s Politburo will act decisively to stimulate the economy. If that happens, we could anticipate a boost in commodity prices which would be welcomed on the Australian Stock Exchange.
Disclaimer: Clime Asset Management Pty Limited | AFSL 221146 | ABN 72 098 420 770. The information provided in this post is intended for general use only. The information presented does not take into account the investment objectives, financial situation and advisory needs of any particular person, nor does the information provided constitute investment advice. Under no circumstances should investments be based solely on the information contained therein. Please consider the relevant disclosure document/s before investing in one of our products. Investment in securities and other financial products involves risk. An investment in a financial product may have the potential for capital growth and income but may also carry the risk that the total return on the investment may be less than the amount contributed directly by the investor. Investors risk losing some or all of their capital invested. Past performance of financial products is not a reliable indicator of future performance or returns.