China’s economy stumbles on power crunch, property woes

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  • China Q3 GDP grows 4.9% y/y vs 5.2% forecast
  • Sept manufacturing facility output progress weakest since March 2020
  • Property building extends declines
  • Coverage measures to spice up equality impression progress

BEIJING, Oct 18 (Reuters) – China’s financial system hit its slowest tempo of progress in a yr within the third quarter, damage by energy shortages and wobbles within the property sector, highlighting the problem dealing with policymakers as they search to prop up a faltering restoration whereas reining in the true property sector.

Gross home product expanded 4.9% from a yr in the past, lacking forecasts, as makes an attempt by Beijing to curb lending to the property sector exacerbated the fallout from electrical energy shortages which despatched manufacturing facility output again to ranges final seen in early 2020, when heavy COVID-19 curbs have been in place.

The world’s second-largest financial system had staged a powerful rebound from final yr’s pandemic stoop however the restoration has misplaced steam from the blistering 18.3% progress clocked within the first quarter.

Underneath President Xi Jinping, a drive to make structural modifications that deal with long-term dangers and distortions, which has concerned crackdowns on the property sector and expertise giants, in addition to carbon emission cuts, has taken a toll.

Analysts at Barclays reduce their fourth quarter forecast by 1.2 proportion factors to three.5% on the disappointing information. Analysts at ANZ reduce their forecast for China’s 2021 GDP progress to eight.0% from 8.3%.

Policymakers will now must steadiness the impression of these structural modifications with steps that can protect the financial system and tame contagion dangers from a debt disaster at main developer China Evergrande Group .

“In response to the ugly progress numbers we anticipate in coming months, we predict policymakers will take extra steps to shore up progress, together with guaranteeing ample liquidity within the interbank market, accelerating infrastructure growth and enjoyable some facets of total credit score and actual property insurance policies,” mentioned Louis Kuijs, head of Asia economics at Oxford Economics.

A Reuters ballot of analysts had anticipated GDP to rise 5.2% within the third quarter.

The weak numbers despatched the yuan and most Asian inventory markets decrease amid broader investor issues in regards to the world financial restoration.

In Europe, China-exposed luxurious shares together with LVMH , Kering and Hermes fell about 3% every, additionally damage by Xi’s name for the growth of a consumption tax.


China, nonetheless an avowedly socialist nation, has pledged to scale back inequality after years of breakneck progress however could must tread cautiously to keep away from derailing a non-public sector that has been a significant engine of progress and jobs, analysts say.

An digital show displaying the China GDP indexes is seen on a avenue in Shanghai, China October 16, 2021. REUTERS/Aly Music

In an essay within the ruling Communist Celebration journal Qiushi final week, Xi known as for progress on a long-awaited property tax that would assist cut back wealth gaps.

New building begins in September slumped for a sixth straight month, NBS information confirmed, the longest spate of month-to-month declines since 2015, as cash-strapped builders reined in funding and paused initiatives following tighter borrowing limits.

In the meantime, the commercial sector has been hit by energy rationing triggered by coal shortages, in addition to environmental curbs on heavy polluters like metal crops and floods over the summer time.

Total industrial output rose simply 3.1% in September from a yr earlier, marking the slowest progress since March 2020, through the first wave of the pandemic.

Aluminium output declined for the fifth consecutive month and day by day crude metal output hit the bottom stage since 2018.

Bucking the detrimental pattern, retail gross sales grew 4.4%, sooner than forecasts and the two.5% progress in August, and the surveyed nationwide jobless charge fell from 5.1% to 4.9%.

“A lot of the (detrimental) components are policy-driven… the financial system is having loads of ache factors and these ache factors will not be going away quickly as a result of insurance policies are right here to remain, and due to this fact it can proceed into 2022,” mentioned Iris Pang, chief economist for Higher China at ING.

On a quarterly foundation, progress eased to 0.2% in July-September from a downwardly revised 1.2% within the second quarter.

Premier Li Keqiang mentioned final week that China has ample instruments to deal with financial challenges regardless of slowing progress, and expressed confidence in hitting full-year growth targets.

On Sunday, Folks’s Financial institution of China governor Yi Gang mentioned the financial system is predicted to develop 8% this yr.

Nonetheless, the central financial institution is predicted to stay cautious about financial easing as a result of worries about excessive debt and property dangers.

Analysts polled by Reuters anticipate the Folks’s Financial institution of China to chorus from makes an attempt to stimulate the financial system by decreasing the amount of money banks should maintain in reserve till the primary quarter of 2022.

Reporting by Kevin Yao and Gabriel Crossley; Enhancing by Sam Holmes and Carmel Crimmins


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