China economy seen slowing as leaders gather for crucial party congress

As China’s leaders gather for a crucial party conference, the country is expected to announce some of its weakest quarterly growth numbers since 2020 on Tuesday, its economy being hampered by Covid restrictions and a housing crisis.
The figures for the third quarter will be unveiled along with a salvo of other economic indicators in the midst of the week-long political gathering that is expected to bring President Xi Jinping to a historic third term.
A panel of experts polled by AFP said they expected an average GDP increase of 2.5% from the July-September quarter of last year.
In the previous quarter, growth in the world’s second largest economy collapsed to just 0.4% year-on-year, the worst development since 2020.
The country recorded growth of 4.8% in the first quarter of 2022.
Many economists believe China will struggle to meet its growth target of around 5.5% this year, and the International Monetary Fund (IMF) has revised its GDP growth forecast to 3.2% for 2022 and 4.4% for 2023 lowered.
AFP’s panel of experts forecast average growth of 3% in 2022, a far cry from 8.1% in 2021.
That would be China’s weakest growth rate in four decades, excluding 2020 when the global economy was battered by the emergence of the coronavirus.
“The big policy challenge is accepting that the economy has reached a state of maturity that means growth numbers for the coming decade are likely to be permanently reset to the zero to 4.5% range,” said Clifford Bennett, chief economist at ACY Securities, to AFP.
Another factor that has had a huge impact is Beijing’s zero-Covid policy.
China is the latest of the world’s major economies to continue following the strategy mandating strict travel restrictions, mass PCR testing and mandatory quarantines.
It’s also about sudden and severe lockdowns – including by businesses and factories – that have halted production and weighed heavily on household consumption.
But despite the impact on the economy, “there is no clear sign of any significant easing of the zero-Covid strategy,” said Nomura’s Ting Lu, noting that the opposite has happened so far.
In the week leading up to the Chinese Communist Party (CCP) congress, state media have published several editorials warning that policies should not be relaxed, and officials have focused on outbreaks across the country with tightened containments over the past week fell.
Some lockdown restrictions have returned to key financial hub Shanghai, leading some to fear a repeat of earlier this year when the city was shut down for two months.
Meanwhile, China is also grappling with an unprecedented crisis in its real estate sector – historically a driver of economic growth and representative of more than a quarter of the country’s GDP when combined with construction.
After years of explosive growth fueled by easy access to credit, Chinese authorities launched a crackdown on excessive debt in 2020.
Home sales are now declining across the country, leaving many developers in trouble and some owners refusing to pay their mortgages on unfinished homes.
Despite the struggles, according to Gavekal Dragonomics analyst Thomas Gatley, “many economic indicators have actually recovered quite well from the mass lockdowns of March and April.”
Auto sales remained strong in September, driven by strong demand for clean electric vehicles.
August exports rose 7.1% yoy and Beijing has invested in infrastructure to support activities.
“However, these pillars of growth are becoming increasingly fragile,” Gatley said.
And “the Chinese economy faces more fundamental problems” of transformation, sinologist Jean-Louis Rocca told AFP.
After decades of growth fueled by investment and exports, he said China “no longer wants to be the ‘factory of the world'” – instead it aspires to be a “modern economy” centered on new technologies and consumption – and the transition is still in progress.
Another concern for the CCP, which derives much of its political legitimacy from its economic success, is that this type of modern economy doesn’t create very many jobs, Rocca said — which has serious implications for China’s burgeoning middle class.

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