More severe restrictions in China to control the coronavirus, and in particular the new Delta version this summer, have raised concerns about the strength of the world’s second-largest economy.
Retail sales growth slowed to 2.5% last month from a year earlier, according to national statistics. The data is not good at all, given that economists forecast growth of 7%. According to the authorities, the slower growth is due to the outbreaks of Covid-19 and the floods, after which travel almost stopped and the cost of summer vacations shrank.
In addition, the country introduced new travel restrictions in the middle of summer, which led to a 4.5% drop in restaurant visits compared to last year. moreover, to stop new infections, China has pursued an aggressive strategy of closing entire cities, canceling flights and even shutting down some ports due to the Covid case. The approach worked, but at the expense of economic activity.
However, in addition to retail and manufacturing, the Chinese economy has to deal with other problems, including a major crisis facing the real estate sector.
New housing projects have started to fall by 3.2% in the first eight months of the year. According to Capital Economic economist Julian Evans-Pritchard, government restrictions on lending to entrepreneurs are putting a heavy burden on the sector.
It became clear yesterday that Chinese real estate giant Evergrande Group could not sell real estate and other assets fast enough to service its huge $ 300 billion debts and that its cash flow was under “enormous pressure.”
The company is one of the largest players in the real estate sector in China and with its statement yesterday has already caused market turmoil in the country, and its shares have collapsed.
Investors are worried that defaulting on large debt could affect China’s banking system. Evergrande is one of the most indebted companies in the world. There were also protests from investors.
Meanwhile, the Chinese authorities aim to stop property speculation, according to economist Ting Lu of Japan’s Nomura Bank. To that end, regulators are making it harder for developers to finance and households to buy homes in China. In addition to Evergrande, the new rules have affected other real estate companies.
In general, the government seeks to ensure that the purchase of property is not a goal for citizens. As early as 2016, President Xi Jinping announced that the properties were for living, not for speculation.
Against this background, sales of new homes fell by 23% on an annual basis in July, according to an analysis of markets in 30 Chinese cities of the company Wind.
Meanwhile, the coronavirus continues to stifle the economy after new outbreaks emerged in the country’s southeastern province.
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