The Chinese economy is weakening. Will Beijing find a recipe for it?


Goldman Sachs joins a long list of analysts who have revised their forecasts for the world’s second largest economy. For example, economists at UBS Investment Bank lowered their forecast from 5.7 to 5.2 percent. Japan’s Nomura Holdings made a similar move, cutting its forecast for this year to 5.1 percent. (from 5.5%). As for the state of the Chinese economy next year, UBS is also pessimistic as it estimates that China’s GDP growth will remain at 5%. – compared to the previously indicated 5.2 percent. Nomura Holdings also lowered its forecast for next year from 4.2 to 3.9 percent. But these revisions do not seem to worry Beijing too much. Xi Jinping’s cabinet has already announced a very cautious GDP growth forecast for this year. At the National People’s Congress – China’s highest legislative body – held in March this year, forecasts were presented according to which the GDP growth rate this year will be “about 5 percent”. In other words, while the rest of the world entered 2023 hoping that China’s reopening after the pandemic would bring about a sharp economic recovery, the latter were well aware that a slowdown was coming. Last Friday, Xi Jinping’s cabinet held a meeting chaired by Prime Minister Li Qiang, whose aim was to prepare a draft of administrative regulations to support industry and private capital in the country. However, the Council of State did not publish or specify what solutions were included in the executive acts. Details are likely to emerge after Li Quiang’s visit to Germany and France later this week. As highlighted in a Goldman Sachs note, “China’s reopening recovery appears to have waned.” It is true that initially, when the country (after a three-year stagnation) opened its economy in January this year, consumption quickly revived, which caused the mirage of a soft landing of the economy after years of isolation. Chinese citizens managed to save a lot during three years of quarantine, and when travel was finally allowed, they used this money suddenly and without measure. This has resulted in the Asian giant’s economy recovering and regaining its usual dynamism in terms of consumption and the service sector. But the industrial and construction sectors, which are the backbone of China’s GDP, have not responded as expected. The Goldman Sachs group of economists, led by Hui Sahn, believes that the Chinese government has little to do in the current situation, pointing out in its report that that any package of measures “will be less effective than in previous recessions” when the state increased investment in infrastructure and real estate “as a way to spur growth.” All analysts agree that Beijing faces an “economic dam” built as its population declines , aging population and growing unemployment (especially among youth), which in May amounted to 20.8 percent. – four tenths more than in April this year. In addition, there is a very large indebtedness of local governments and families, which causes, among others, decline in demand for housing. That’s why economists point to a range of incentives for real estate and infrastructure, but “targeted and moderate”. “Following the same old route of using real estate and infrastructure to create a strong economic recovery would be mindless if they want high-quality economic growth,” Goldman Sachs write. The mantra of “qualitative economic growth” has been used by Chinese leaders since the restrictions were lifted, but in practice, the Chinese authorities seem to have little understanding of how to achieve this qualitative growth. Rory Green, an economist at TS Lombard consulting firm, believes that President Xi Jinping “it wants higher-quality growth and is unlikely to change its position now.” The expert reiterated that stimulus measures will exist but are expected to be “close to the gradual intercyclical adjustment that China has been using over the past five years.” The first stimulus measures were small and very specific. The People’s Bank of China (PBOC) met forecasts and cut interest rates last Tuesday by ten basis points – from 3.65 to 3.55 percent. reference rate for loans up to one year. At the same time, it also lowered the short-term interest rate earlier this week. All of this comes as the Fed and European Central Bank continue to raise the price of money to contain inflation. This variation in exchange rates is causing the Chinese yuan to continue to depreciate against the dollar. Source:

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