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Judgment Day for the Chinese economy – sharecafe

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A big day today for the Chinese economy and its growth trajectory towards the end of 2021 and early 2022, with the release of what could be fairly weak third-quarter economic growth figures, as well as some bad ones. data on investment, retail sales and industrial production.

Economists believe China’s quarterly growth will be around 5.1% from the 7.9% annual rate in June. Quarterly growth is expected to slow to 0.4% from 1.3% in the June quarter.

If the numbers are better than expected, market skepticism increases.

China got a taste of winter in the northern regions on Friday, pushing coal prices to new highs and further straining the country’s overloaded electricity and gas sectors.

At the same time, the struggling real estate sector continues to remind everyone that this is the second biggest concern for the economy after energy and power reliability this winter.

Reuters reported over the weekend that representatives from 10 Chinese real estate companies have met with government regulators to call for an easing of the current strict political restrictions.

Reuters said senior officials have urged authorities to ease regulations in a bid to stabilize market expectations, support genuine homebuyers rather than speculators, and adjust land prices.

Led by China Evergrande, a number of Chinese real estate companies are facing a liquidity shortage due to weak demand and tighter regulations. Real estate companies have been hit by government-imposed loan ceilings to contain rampant borrowing.

China’s central bank broke ranks on Friday to ensure that ailing property developer China Evergrande was a one-time case.

Contagion fears have intensified over the past three weeks after a surprise default by Fantasia Holdings Group Co. and a warning from Sinic Holdings that its default was imminent. This is in addition to the three missed payments by China Evergrande.

The People’s Bank of China (PBOC) said in a briefing that the risks to the financial system resulting from the developer’s struggles are “controllable” and unlikely to spread.

The head of the People’s Bank of China, Zou Lan, told a press conference on Friday that the central bank had asked lenders to keep lending to the real estate sector “stable and orderly.”

Zou heads the financial markets department of the PBOC.

“In recent years, the company has failed to manage its business well and operate cautiously in a changing market environment,” Zou said of Evergrande, which has liabilities of more than $ 300 billion. . “Instead, it has grown and diversified blindly.”

The central bank is urging real estate companies and their shareholders to honor their debts, Zou said in comments reported to local and Western media.

His remarks are a sign of growing concerns at the highest level of the Chinese government over the threat to the stability of real estate, the economy at large and the financial system from defaults and tensions in the developer sector.

This week will see the impact of real estate tensions and the energy crisis appear on Q3 GDP as well as the big monthly data dump on retail sales, industrial production, investment (especially in housing) and employment.

The data will tell us a lot about the impact last month and August of new Covid outbreaks, blackouts and blackouts, misguided attempts to cut carbon emissions by forcing industry to cut back. production and growing problems in real estate.

The weakness will be visible in services (now most of the economy) with weak retail sales (thanks to falling pork prices), low levels of investment, especially in real estate (due to government restrictions and mixed production resulting in particular from the impact of the campaign to reduce production and carbon emissions in a number of industries such as steel, aluminum and cement manufacturing.

Moody’s economists wrote late last week that China’s strong trade performance in September “adds confidence to our forecast for the country’s third-quarter GDP, estimated at 5.4% year-on-year “.

“The forecast has been revised downward several times amid disappointing domestic consumption and production caused by extreme weather conditions and a virus outbreak caused by Delta. This brings our annual forecasts to 8% for 2021 and to 4.8% in 2022. External demand will remain favorable by 2022.

Moody’s has warned that China faces challenges on several fronts. These include supply chain disruptions, power shortages, high commodity prices putting pressure on downstream producers and a build-up of credit risk in the real estate market.

These challenges are causing the expected deceleration of the September activity data dump. We expect industrial production, capital investment and retail to all slow down further in terms of year over year, ”according to Moody’s forecast.

Exports, however, remained firm during the quarter, showing that foreign demand for Chinese products and goods was still strong, particularly in the United States, and that shipping and container shortages had not had such an impact. important.

Imports were strong, but affected by volatility in commodity prices – particularly coal, LNG, petroleum and other metals and some grains and these rapid price increases translated into cost pressures for businesses.

This saw producer prices rise at a record pace last month, hitting an annual rate of 10.7% while consumer price costs again drifted below 1% per year for another month. .

Data from the National Bureau of Statistics of China (NBS) revealed that producer prices exceeded expectations of a 10.5% rise and August’s shock rise by 9.5%.

This is the highest reading since the launch of the NBS database in October 1996 after the index hit 10.0% in August 2008 and 10.1% the following month.

You can blame the higher reading on soaring coal and gas costs as well as the impact of increases in oil, gasoline, diesel and the impact of higher prices for computer chips, cars. and other means of transport.

The increase was largely due to a 74.9% year-over-year increase in coal mining, which was up from an annual increase of 57.1% in August. This means that the costs of coal to industry – especially power generation – have more than doubled in the space of two months.

“In September, affected by factors such as rising coal prices and some energy-intensive industries, the rise in industrial product prices continued to expand,” NBS spokeswoman Dong said. Lijuan, who added that among the 40 industrial sectors surveyed, 36 saw their prices increase. .

China’s official consumer price index (CPI) rose 0.7% in September from a year earlier, compared to an increase of 0.8% in August, the SNB said.

It was a little below expectations of an unchanged 0.8% increase. This is well below the US CPI which was up 5.4% per year in September.

This is another problem for the Chinese economy and its leaders – consumer prices are sinking further into disinflation, which means that soaring costs of coal and other costs (like gas) are indeed. driven by producers and not by retailers and distributors of electricity and gas.

This means that there is a worrying build-up of cost pressures in the manufacturing and production sectors.


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