Recession fears are looming on China’s horizon
‘Economic numbers can be fudged but ultimately people know they have less money in their pockets’
What was once described as the “China Miracle” has turned into the China Malaise. Anyone with a rudimental knowledge of economics will realize that the country is facing an existential crisis with the threat of recession looming on the horizon.
Under President Xi Jinping’s regime, local government debt is now an eye-watering US$23 trillion while the property sector is hooked on life support after the collapse of Evergrande.
Wages have stagnated, consumer confidence has evaporated as spending shrinks and one in five young people are unemployed.
“[Xi has] failed to address economic problems, which have festered and resulted in a slowdown that for many Chinese feels like a full-blown recession,” Ian Johnson, a senior fellow for China Studies at the Council on Foreign Relations, said.
“Economic growth numbers can be fudged but ultimately people know what they know – and they know that they have less money in their pockets,” he wrote in a blog post for the New York-based think tank.
Support is needed to prevent China from [a] recession.
Julian Evans-Pritchard of Capital Economics
By the numbers:
- Manufacturing activity contracted for the fourth straight month in July.
- The official PMI was just 49.3, the National Bureau of Statistics revealed on Monday.
- That stayed below the 50-point mark that separates expansion from contraction.
- The construction sector has also collapsed, underlining the unemployment crisis.
Delve deeper: “The sharp fall in construction activity is a worrying sign of a potential death spiral in the property sector,” Xu Tianchen, of the Economist Intelligence Unit, said as reported by the Reuters news agency.
Between the lines: The Communist Party government has rolled out a raft of vague plans to revive the ailing private sector and slow the meltdown in the construction industry.
Big picture: Approximately 60% of China’s GDP is generated by private companies, as well as 80% of urban jobs, according to the Harvard Kennedy School.
The bottom line: “Looking forward, policy support is needed to prevent China’s economy from slipping into recession,” Julian Evans-Pritchard, of Capital Economics, wrote in a note.
China Factor comment: The powerful Politburo has admitted that the economy faces a “tortuous” recovery, the official Xinhua News Agency reported last week. Surely, one of the great understatements.