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Although the figures provided by China give the impression of a reactivation of its economy, “the situation is not entirely rosy”, according to the description of an analytical article published by the magazine “Financial Times”.
China’s economy grew between the second and third quarters of this year, by 4.9 percent, which the magazine described as “the only case of its kind among the world’s largest economies.”
While the International Monetary Fund had expected China to avoid a recession this year, there is now no certainty, according to the magazine, despite Beijing’s remarkable grip on the aftermath of the new Corona epidemic, in addition to the industrial prowess in the country.
However, when looking at the numbers, the picture can change, according to the Financial Times.
Central Support Dose
Long before the outbreak of the pandemic, the world’s second-largest economy appeared dangerously unbalanced, and Beijing heavily focused on the main GDP figure as a measure of its economic strength.
The result was that when growth was in danger of reaching levels that the Chinese Communist Party considered too low, the state aggressively intervened.
This intervention has often involved the financing of projects, especially in construction, which cannot have an economic purpose other than to stimulate demand.
Central intervention also led to levels of investment in state-owned companies that far exceeded the contribution of the private sector, resulting in inflated public municipal debt following the 2008 financial crisis.
Counterproductive to government intervention
This appears to have happened again, on the occasion of the outbreak of the Covid-19 epidemic that began in Wuhan in December 2019.
In the first nine months of the year, investment in fixed assets of Chinese non-state companies fell 1.5 percent from the previous year.
As for state-owned companies, it increased 4 percent in the same period.
Chinese experts have repeatedly warned that overinvestment in areas like real estate is leading to a huge backlog of loans.
Therefore, there are several reasons to believe that this imbalance between public and private investment and the resulting threat to long-term growth could be exacerbated.
China has responded to the epidemic by closing its borders to the point where access by foreigners is now impossible.
Commercial hostility
And if corporate representatives from places like Germany are no longer able to visit China, then Beijing’s economy is expected to see a drop in domestic investment as a result.
Add to this the geopolitical tensions between China and its trading partners, in particular the dispute with the United States.
But the Chinese dispute did not stop at the borders of the United States, as economists believe that Beijing has many trade problems with other countries.
The Japanese government said it would pay companies to stop using Chinese factories, and South Korea has taken a similar approach.
Beijing has tried to correct this deflation through a model that Chinese President Xi Jinping has called “dual trade.”
After the US ban … the collapse of the shares of the Chinese chip giant
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The idea formalizes a long-term drive to provide more growth through domestic demand, allowing the economy to survive its separation from the rest of the world by consuming more of its products.
There are signs that domestic demand is improving as imports jumped to their highest level so far this year in September.
Retail sales also recovered, although at a slower pace than GDP.
However, household consumption accounts for less than 40 percent of production, compared with around 65 to 70 percent in most advanced economies.
While no one cares to falter at a time when second waves threaten to trigger a double dip recession in other advanced economies, the failure of private investment, as it is in China, poses a risk in the coming quarters.
