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Oil prices on Wednesday fell to their lowest level since August 8 ($83.45 a barrel of Brent), despite a significant drop in US inventories, as investors fear first of all the downturn in the Chinese economy.
According to the agency ReutersChina’s economic activity data for July, including retail sales, industrial production and investment, fell short of expectations, heightening fears of a deeper and longer slowdown in the world’s second economy.
China’s National Bureau of Statistics (NBS) said that domestic demand remains “insufficient” and “the foundation of the economic recovery still needs to be strengthened”, while China needs to “intensify macroeconomic policy adjustment and focus on expanding domestic demand, improving confidence and avoiding risks” .
It is worth noting that White House press secretary Karine Jean-Pierre, at a briefing on August 16, announced “problems” with the transparency of economic data published by Beijing. Be that as it may, the July figures have prompted some economists to note the risks that the PRC may find it difficult to meet its GDP growth target of around 5% per annum without additional fiscal stimulus.
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This is still much higher growth than many other major economies, but for a country that invests approximately 40% of its GDP annually – about twice as much as the United States – this remains a disappointing result. .
Economists have warned that investors will have to get used to much lower Chinese growth, and some even predict that the Chinese economy will face a stagnation similar to that which has been going on for three decades in Japan.
The biggest concern these days is the situation in the real estate market, which accounts for about a quarter of China’s economic activity. The sharp increase in infrastructure investment and the encouragement of real estate speculation, which helped China overcome the effects of the previous global economic crisis, led to a rise in debt, which created high risks to financial stability.
Western media write that the bubble in the Chinese real estate market has already burst, while the problems have spread to the financial industry, negatively affecting the dynamics of lending and the growth of the Chinese economy. Much attention is drawn to the situation around Zhongrong International Trust, a division of one of the largest trust companies in China, which has already missed payments on dozens of its investment products, while not informing its clients of any information about damages.
Zhongrong is one of the largest firms in the PRC trust industry. It offers 270 high-yield products (loans and investments in real estate, stocks, bonds and commodities) totaling 39.5 billion yuan ($5.4 billion), according to Use Trust.
The cause of Zhongrong’s problems was an unsuccessful investment in real estate, the agency writes. Bloombergwhile emphasizing that “investors staged a protest in front of the company’s office, showing a rare expression of public outrage in China.”
Chinese officials have set up a task force to look into the possible impact of a real estate downturn that threatens to destroy giants like Country Garden Holdings Co. It is noteworthy that the first step of the PRC financial authorities was the easing of monetary policy in the hope of reviving economic growth.
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On Tuesday, the People’s Bank of China cut its rate on annual or medium-term loans by 15 basis points to 2.5%, the lowest in three years. At the same time, 14 out of 15 analysts polled by Bloomberg predicted that the rate would remain unchanged. (Recall that on the same day, the Bank of Russia, on the contrary, raised the key rate from 8.5% immediately to 12% against the backdrop of a depreciation of the ruble and the risks of inflation acceleration).
“The Chinese central bank surprised markets by cutting interest rates, but economists warn the easing is too small to be significant. Its main role is to send a signal to the markets that the authorities are ready to stimulate the economy. At the same time, a larger rate cut could create risks of yuan depreciation and capital flight, which China will clearly seek to avoid,” Reuters said, stressing that economists expect China to hold a key party conference in December to discuss deeper structural reforms.
Mikhail Makarov
#Chinese #economy #predicting #unpleasant #stagnation
2023-08-17 14:40:00
