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Dragon losing its TEETH: China’s economy is going into downward spiral, showing signs of serious trouble

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The world’s second-largest economy and the so called World’s Manufacturing hub isn’t growing, producing, or trading as much as it usually does. The pandemic rebound that China and the rest of the world were anticipating has yet to materialize, and official data suggests there’s a long road ahead before the economy is back on its feet.

There is no denying the fact that the Chinese economy is in bad shape, and while Beijing has vowed to boost the private economy and safeguard businesses, its efforts seem to be falling short. The country’s economic activity data for July paints a concerning picture, with key indicators such as retail sales, industrial output and investment output failing to match expectations.

This has fueled concerns over a deeper and longer slowdown in growth.

Data related to Chinese economic activity has been missing forecasts since the beginning of the second quarter, and it has raised some serious concerns, evidenced by the nervousness in global markets.

China’s National Bureau of Statistics announced Wednesday that consumer prices dropped annually in July for the first time in two years, dipping 0.3%, just slightly better than median estimates for a 0.4% decrease.

The People’s Bank of China is now facing the opposite problem of the Federal Reserve, which has tightened policy for 18 months in a bid to tame soaring prices. Deflation — the trend of prices falling throughout the economy — presents a particularly dangerous trajectory for China, which carries a massive amount of debt.

Iron Veiled Communist Fascist government in China is No-more able to hide Truth. Chinese Real Estate Giant Evergrande Group has filed for Chapter 15 bankruptcy protection in New York to protect non-US companies undergoing restructuring from creditors suing or seizing assets in the US. Evergrande is one of China’s largest real estate groups.

After defaulting for the 1st time in 2021, its total liabilities once reached 2.4 trillion yuan, triggering a crisis in China’s real estate market. But Evergrande is not the only Chinese Real Estate Giant which has gone bankrupt. It has one more entity to give company.

China’s biggest developer by sales Country Garden has delayed two international bond payments. Real estate sector in China is still very weak. Country Garden is unable to pay its debts due to liquidity crisis. The company had almost $200 billion in debt at end of 2022.

Country Garden was one of the best real estate developers during Evergrande crisis. But liquidity problems are not bypassing it either. Real estate sales in 2023 are down by 50% on YoY leading to lack of liquid cash. Company has 30-day grace period, and after that it is all set to file for bankruptcy.

Missed payments on investment products by a leading Chinese trust firm & fall in home prices have added to worries that China’s deepening property crisis is hurting so much that China’s Central Bank cutting key policy rates for 2nd time also won’t stop it’s downward trend.

The yield gap between Chinese 10-year government bonds & US Treasuries widened to 164 bps, highest level since 2007. It highlights fragility of China’s economy & makes things worse. Foreign direct investment in China fell to a 25-year low to $4.9 Billion in Q2 of 2023.

China’s exports fell by 14.5% in July on YoY , while imports fell by 12.4% last month. Fastest decline since Feb 2020. Weak exports, caused by falling global demand, have increased the pressure for Beijing to boost domestic consumption in the rest of the year.

China’s consumer-price index fell by 0.3% in July YoY. Index of factory-gate prices slumped by 4.4%. China had been teetering on the brink of deflation for months, as the rebound from lockdowns fizzled out. On the other hand, China’s unemployment surges to record 21.3% in June.

Exports down, FIIs are selling holdings in China , Investment is receding , Property market is reeling & deflation too, plus investors parking money in India instead of China.

Therefore, the Chinese government has its task cut out as it needs to convince households to spend more and save less in a declining economic environment. Clearly, it is struggling to do so as the country is facing ‘deflation’ as recent data suggested.

Deflation is the opposite of inflation and refers to a sustained and general decrease in the overall price levels of goods and services in the economy.

According to economists, too, China’s current economic condition is largely due to its dependence on debt-fueled investments and the property market, caring little about boosting domestic household consumption.

If the situation does not improve, China could be well on its way to facing stagnation which could cripple its economic growth for years. Consumers and small business owners in the country are already feeling the pain of the economic slowdown, with unemployment rates rising fast.

Currently, China’s most significant path toward addressing the slowdown lies in elevating the proportion of household consumption within its GDP. Yet, if this endeavor falls short in the immediate future, the persistence of China’s economic turmoil could reverberate globally with far-reaching consequences.

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