Slump or sluggish? Take your pick. But one thing is certain, China’s economy is still struggling, weighed down by debt, anemic consumer confidence and a property meltdown.
Latest data from the National Bureau of Statistics showed that industrial profits went into free fall during the first two months of the year.
Monday’s numbers came off the back of weak retail sales earlier this month and a dive in property investment fueled by a tottering housing market.
“The foundation of China’s economic recovery is not yet solid enough,” Han Wenxiu, the deputy director of the Communist Party’s General Office of the Central Financial and Economic Affairs Commission, warned at a forum in Beijing on Saturday.
By the numbers:
- Industrial profits contracted by a whopping 22.9% in January and February compared to the same period in 2022.
- That was against a 4% fall for the whole of last year.
- Since the ruling Communist Party dumped President Xi Jinping’s “zero-Covid” policy in December, the economy has struggled to recover.
- One of the key perennial problems has been local government debt.
Warning from history: “The extent of off-balance-sheet borrowing among local governments isn’t known, but could be as high as 40 trillion renminbi (US$5.78 trillion). That’s a debt iceberg with titanic credit risks,” rating agency S&P Global revealed.
Delve deeper: The debt dilemma has been exasperated by a real estate crisis triggered by the collapse of Evergrande in 2021. The property giant disappeared into a $300 billion black hole before a state-backed bailout.
Big picture: “There is a very real risk that China could suffer the same fate as Japan, which is still struggling to emerge from an extended period of economic stagnation that began in the 1990s,” Zhiwu Chen, of the Hong Kong Institute for the Humanities and Social Sciences and professor of finance at the University of Hong Kong, said.
Between the lines: “Japan’s troubles were caused, in part, by a burst real estate bubble and financial-sector problems similar to what China is now facing,” he wrote in a commentary for The New York Times at the weekend.
Risk factor: “China’s regulatory troubleshooters have proven the financial doomsayers wrong again and again. But their biggest test may yet lie ahead,” Chen concluded.
China Factor comment: The sluggish state of the world’s second-largest economy can be traced to the tangled web of red threads being pulled by Beijing. The tighter they become, the greater the risk of unraveling the entire economic edifice.