The Chinese economy is on the skids. Then again, it’s always been on the skids.
Country Garden’s dollar debt payments on Monday and Beijing’s new efforts to help China’s beleaguered real estate sector appear to have spurred some newfound hope in the country’s financial markets.
However, the recent policy tweaks could be ineffective for China’s economy, according to Capital Economics, a London-based independent economic research firm.
Business activity in China’s services sector plummeted to its lowest level in eight months in August. Data released by the Caixin China General Services show that the purchasing managers’ index (PMI) fell to 51.8 in August from 54.1 in July. Expansion is indicated by a number more than 50, whereas contraction is characterized by a number less than 50.
In reality those figures are likely to be much, much, worse.
[…] To revive slowing growth, Beijing recently released a slew of measures, such as lowering key interest rates and bank lending rates to boost spending, and extending tax relief for small businesses and rural households. Regulators also eased borrowing rules to help homebuyers, such as relaxing home purchase restrictions and lowering the mortgage rate and down payments for first-time buyers in some cities.
Yet analysts say these policies, and the Country Garden payment, may make little difference to the economy in the face of a sluggish labor market recovery and uncertain household income expectations.
“New measures to revive China’s struggling economy seemed to have sparked some renewed optimism but that may be another false dawn in China’s markets,” said Capital Economics in a client note on Monday.
Sticking plasters that ignore the real problem.
According to the research firm, the relaxation of the recent regulations and the attempt to shore up mortgage holders’ finances appear as poor substitutes for “some monetary easing.”
And while the policy tweaks could reduce the need for big rate cuts, “China’s economy seems to have real big problems, [even as] investors are [turning] skeptical about policymakers’ willingness to do what it takes to support growth,” the note said.
[…] While there are several reasons why China’s economy is slowing down, the property market crash has been the economy’s biggest blow.
The problems of Country Garden, China’s largest property developer, have raised concerns about systemic risk and a spillover effect on other industries. The downturn has already reduced household wealth, spending, and local government income, with repercussions in other sectors.
The country’s high debt burden – expected to reach 84 per cent of its GDP in 2023, according to Trading Economics global macro models – has also been a significant drag on economic growth. If Beijing is unable to reduce the debt load, it might eventually lead to a financial disaster for the country, according to experts.
Although the CCP has been proposing policies to boost the economy, experts believe its efforts are slow, the measures are inadequate, and authorities need to do more.
Here’s the thing: China is a totalitarian communist country. Their economy isn’t capitalist. It’s pseudo capitalist. If you were feeling generous, maybe you could call it “state capitalism”. The State has its finger in every pie. Most importantly, “Chinese capitalism”, for lack of a better phrase, isn’t self-correcting. If it were it would be able to handle downturns and major demographic changes (a biggie).
The Chinese economy is built on cheap unskilled labour making cheap shoddy junk that it then dumps on the rest of the world. Compare to the US where the economy is built on highly skilled labour and high tech – computers, airplanes, etc. And the US economy is self-correcting. The US economy may be down now, but it will eventually pick up again. The same thing can’t be said about China.
Of course, this isn’t good news for us, thanks to successive governments with total lack of foresight. Unless we start doing things quickly, China is going to drag us down with it. By how much we can only guess.
And to think Luxon has virtually said he’s willing to sell us out to the Chinese…
