China’s Economy Stumbles Power Cuts Strains, Property Woes, And Covid – – Daily Cryptocurrency and FX News

Evergrande Missed 3rd Round Of Bond Coupon Payments, Contagion Fears Increased

In the quarter to September, the GDP of China grew 4.9%, the lowest for a year, while the post-pandemic recovery loses steam and Evergrande problems persist.

Owing to power outages, supply bottlenecks, Covid outbreaks, and concerns about the struggling property sector, China’s economy grew slower than expected in the third quarter, official data showed on October 18.

China’s central bank governor said the country is “doing well”, yet, independent economists predicted that the mounting array of headwinds suggest a “deeper downturn” resulting in the country’s weakest growth for more than a decade next year.

The national statistics bureau said on Monday that in the July-September quarter ,Gross domestic product (GDP) expanded by 4.9% from a year earlier, slowing from 7.9% in April-June and compared with expectations for a rise of 5.2% that was expected by economists.

Marking a further deceleration from a record 18.3% expansion in the first quarter, the result was the weakest reading since last year’s third quarter, when GDP also grew 4.9%.

The data showed that, however, more worryingly for Beijing’s economic managers, quarterly growth was just 0.2% between July and September from 1.2% in the second quarter. Since the first publication of quarterly figures in 2010, this is the weakest growth rate ever recorded.

According to Reuter’s calculations, new construction starts in September fell 13.54% from a year earlier, the third month of double-digit declines.

There were concerns that property developer China Evergrande Group may officially default on its offshore debts this week besides adding to concerns that the property sector, which accounts for up to 25% of China’s GDP, could drag the whole economy into a slump.

In the wake of the news, Stocks were sold off across Asia with Hong Kong being the worst hit with a loss of 0.53% on the Hang Seng. The price of crude oil rose by more than $1 to trade at $85.89.

Julian Evans-Pritchard, the senior China economist at Capital Economics, said his consultancy’s “activity proxy” measure now pointed to a “sharp contraction” in GDP.

“Although some of the recent weakness in services is now reversing, industry and construction appear on the cusp of a deeper downturn.”

“For now, the blow from the deepening property downturn is being softened by very strong exports. But over the coming year, foreign demand is likely to drop back as global consumption patterns normalize coming out of the pandemic and backlogs of orders are gradually cleared. All told we expect growth of just 3% on our China activity proxy next year, the slowest pace since the global financial crisis.”

Although the world’s second-largest economy has staged an impressive rebound from the pandemic, its recovery is losing steam. This scenario has fanned speculation that policymakers may announce more stimulus measures in the coming months were problems including faltering factory activity, power cuts in the country’s crucial northern industrial heartland, and a slowing property sector.

The future of China Evergrande Group, the country’s number two developer which is struggling under a $300bn mountain of debt, is principal among the concerns about the giant property sector.

Having already missed three repayments on bonds that it owes overseas investors in US dollars, trade in its shares in Hong Kong has been suspended since 4 October.

The crunch could reach ahead this week when the 30-day grace period is up on the first tranche of repayments – worth $83.5m – that were missed in September.

Despite facing challenges such as default risks for certain firms due to “mismanagement”, the head of China’s central bank, Yi Gang, said on Sunday the economy was “doing well”.

Yi said that among the challenges for China’s economy included default risks for some firms and operational difficulties among small and mid-sized banks. He added that authorities were keeping a close eye “so they do not become systematic risks”.

Furthermore, Yi added that at an online meeting of the Group of 30 international banking seminar, which coincided with the annual meetings of the International Monetary Fund and World Bank, despite setbacks from coronavirus infections, China’s economy was expected to grow 8% this year. He stated:

“Economic growth has been slowed down a little bit, but the trajectory of economic recovery remains unchanged.”

Additionally, authorities will first try to prevent problems at Evergrande from spreading to other real estate companies to avoid a broader systematic risk.

The rumbling crisis at Evergrande and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high last week and triggered a fresh round of credit rating downgrades. Yi concluded:

“The interest of creditors and shareholders will be fully respected strictly in accordance to the law. The law has clearly indicated the seniority of liabilities.”

He said that while respecting the rights of creditors and shareholders, authorities will give the highest priority to the protection of consumers and homebuyers.

Yi said that to fend off financial risks, China’s central bank was taking various steps such as replenishing capital for small and midsize banks.

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