With the economic downturn, China pays the cost of managing long-term risk

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GDP data released by China’s National Bureau of Statistics on Monday confirmed that the country’s economic recovery from the impact of the coronavirus pandemic is running out of steam. The Chinese economy grew only 4.9% in the third quarter of 2021, compared to the same quarter last year. Although some slowdown is expected, the fall was more pronounced than the bearish forecasts of analysts, who subsequently revised their overall forecasts downward in recent weeks. The third quarter figure was also a significant drop from the 7.9% growth rate in the previous quarter, not to mention the 18.3% in the first quarter of this year.

“The Chinese economy has maintained the momentum of recovery in the first three quarters with progress in structural adjustment and high-quality development,” Fu Linghui, spokesperson for the Bureau of Statistics, said on Monday. a press conference, putting a positive spin on the data. “China is able to meet its social and economic development goals for the whole year,” he said, adding that the country is still on track to meet its annual growth target of 6. %.

However, Fu also admitted that the economy was affected by “multiple drawbacks” and warned of “the growing uncertainties in the international environment and the uneven recovery of the national economy”. He cited the resurgence of COVID-19 outbreaks that have closed several Chinese container ports, crippling floods that have displaced thousands of people in the summer and, more recently, an electricity crisis that has halted production and disrupted supply chains in major industrial regions.

These are not the only sources of pressure on the world’s second largest economy. Although not mentioned by authorities in Beijing, the unresolved debt crisis of Evergrande – the country’s largest real estate developer – and its potential fallout, along with a dizzying regulatory crackdown targeting everything, from the technology and entertainment sectors to private education, also feature prominently among the problems that threaten to derail the Chinese economy. High-profile targeting of the tech sector, in particular, had wiped out nearly $ 1.5 trillion in value from tech stocks by August.

“The only surprise in China’s GDP figures is that they haven’t gone down,” Paras Anand, Asia-Pacific investment director at Fidelity International, told Financial Times, highlighting the wave of monetary tightening. , fiscal and regulatory. .

The latest stumble could be more than just a temporary setback to China’s initial post-pandemic recovery, as analysts suggest the crisis will continue through the winter and potentially into the spring of 2022.

To meet these challenges, the Chinese authorities are implementing new measures to stabilize the electricity supply, encourage consumption and facilitate foreign trade. For example, the country’s economic planner, the National Development and Reform Commission, has pledged to intervene in the coal market and tasked state enterprises to increase coal production. Leading economists also expect Beijing to take steps to support growth, “such as ensuring abundant liquidity in the interbank market, accelerating infrastructure development, and easing aspects of credit and real estate policies. “Louis Kuijs, head of Asian economics at Oxford Economics, told Reuters.

The latest stumble could be more than just a temporary pullback from China’s initial rebound, as analysts suggest the recession will continue through the winter and potentially into spring 2022.

Yet despite economic headwinds, Beijing appears unwilling to ease its regulatory crackdowns, which it sees as a necessary step to minimize long-term risks and US “decoupling” – and for which the slowdown is a price to pay. In his August political speech, Chinese President Xi Jinping shook the rich and powerful in the country by calling for “common prosperity.” In an article published Friday in Qiushi, the flagship journal of the Chinese Communist Party, Xi clarified his vision for the redistribution of wealth and the fight against socio-economic inequalities. (See this full translation of Adam Ni’s speech in Neican Chinese.)

In the essay, the Chinese leader doubled down on his proposals to curb real estate speculation and called for a nationwide property tax. “We must clean up and regulate unreasonable incomes, strengthen the management of the distribution of income in monopoly sectors and with regard to public enterprises, rectify the order of income distribution and clean up chaotic situations of distribution,” he stressed. M. wake-up call to the rich bureaucrats and executives of the country.

While the proposal is ostensibly aimed at narrowing China’s wealth gap, there is no doubt that Beijing sees it as its top priority. Xi’s rejection of “welfarism” in the essay “is a wake-up call to observers who maintain Xi’s goal is to have a socialist welfare state,” associate professor Henry Gao told Quartz. law at Singapore Management University. “It was never on the agenda and will not be. The first priority is always to achieve state goals, such as the great rejuvenation of China. “

Writing in Bloomberg, Shuli Ren argued that, as he prepares to reshuffle his cabinet next year, “Xi is using the [common prosperity] slogan for cleaning your own house – hunting big tigers. ”

In other news

Microsoft is ending LinkedIn operations in China, citing “a significantly more difficult operating environment and stricter compliance requirements.” The exit of the professional networking site signals the departure from China of one of the last major US social media networks, in an increasingly strict regulatory environment for domestic and foreign tech giants. The move came after LinkedIn sparked controversy for blocking access to the accounts of several journalists and activists in the region due to content they included on their pages or shared on the site.

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Chinese Foreign Ministry spokesman Zhao Lijian denied reports that the country tested a nuclear-capable hypersonic missile in August, describing it as “a routine test of a space vehicle.” Citing five people familiar with the test, the Financial Times reported on Sunday that the Chinese military launched a hypersonic glide vehicle that flew over space into low orbit, demonstrating a capability that surprised U.S. intelligence services.

Worth reading

Despite Xi’s stated desire to curb real estate speculation, his nationwide property tax plan is meeting resistance within the Chinese Communist Party both among senior officials and grassroots members, Lingling Wei reported. in the Wall Street Journal. In light of the internal setback, Han Zheng, the vice premier responsible for its deployment, suggested reducing the levy. Another emerging alternative is to revert to the “dual track” system which offers optional government subsidized units, alongside commercial apartments, for housing.

Rachel Cheung is a Hong Kong-based freelance journalist. Her work has appeared in the Los Angeles Times, the Washington Post, and the Nikkei Asian Review, among other news outlets, and she was previously a reporter in the culture bureau of the South China Morning Post.


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