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May 20, 2022

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China’s economy slowed late last year due to real estate problems

Beijing – Construction and sale of property Have collapsed. Small businesses closed due to rising prices and weak sales. Local bodies burdened with debt are cutting the salaries of government employees.

China’s economy slowed significantly in the final months of last year as government measures to curb real estate speculation affected other sectors. Locks and travel restrictions to control the corona virus also reduced consumer spending. Strict restrictions on everything from internet businesses to post-school training companies have created waves of layoffs.

China’s National Bureau of Statistics said on Monday that economic output from October to December was only 4 percent higher than the same period last year. This indicates a further decline 4.9 percent growth In the third quarter, from July to September.

World demand for consumer electronics, furniture and other household items during epidemics keeps exports strong, stifling China’s growth. Over the past year, the government has projected China’s economic output to be 8.1 percent higher than 2020. But much of the growth was in the first half of last year.

The snapshot of China’s economy, the main engine of global growth over the past few years, adds to the expectations of a broader global economic outlook. Begins to fade. To make matters worse, the omigran variant of the corona virus is now beginning to spread in China, leading to more restrictions across the country and raising renewed fears. Disruption of supply chains.

The sluggish economy is causing an embarrassment to China’s leaders. The measures they have taken to address income inequality and control companies are part of a long-term plan to protect the economy and national security. But, especially in a year of extraordinary political significance, officials are wary of creating short-term economic instability.

Next month, China will host the Winter Olympics in Beijing, which will draw international attention to the country’s performance. In the fall, Chinese President Xi Jinping is expected to seek a third five-year term at the Communist Party conference.

His country’s growth is slowing, demand is low and debt is still at record levels. G will face huge economic challenges.

“I fear that the functioning and development of China’s economy will be relatively difficult for the next several years,” Li Daokui, a leading economist and Chinese government adviser, said in a speech late last month. “Looking at the five years as a whole, it can be a very difficult time since our reform and its opening 40 years ago.”

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China also faces the problem of rapid aging, which could place an even greater burden on China’s economy and its workforce. China’s birth rate fell sharply last year and is now higher than the death rate, according to the National Statistics Office.

As the cost of many raw materials has risen and the epidemic has pushed some consumers to stay at home, millions of private businesses have collapsed, most of them small and family-owned.

This is a major concern as private companies are the backbone of the Chinese economy, accounting for three-fifths of production and four-fifths of urban employment.

Kang Xing invested most of his savings three years ago to open a women’s clothing store in Nanping, a river town in southeastern China’s Fujian Province. But a year later when the epidemic struck, the number of customers dropped drastically and never recovered.

Like many countries, China has undergone a widespread shift towards online shopping, which can reduce stores by using fewer workers and operating from cheaper warehouses. Despite the epidemic, Mr. Kong was stuck paying high rents for his shop. He finally closed it in June.

“We can’t live without it,” he said.

Another persistent difficulty for small businesses in China is the high cost of borrowing at often double-digit interest rates from private lenders.

Chinese leaders are aware of the challenges facing private companies. The central bank is taking steps to give more credit to small businesses to the state-controlled commercial banks in the country. Prime Minister Lee Hsien Loong has promised further cuts in taxes and fees to help many of the country’s struggling small businesses.

On Monday, China’s central bank made a small move to cut interest rates, which could help lower the interest costs of the country’s heavily indebted real estate developers. The central bank cut the interest rate on some one-year loans by one tenth of a percentage point to 2.85 per cent.

Building and fitting new homes represents a quarter of China’s economy. Over the past two decades, huge debt and widespread speculation have helped China build 140 square feet of new housing for every urban dweller.

This fall, the sector stumbled. The government wants to limit speculation and reduce the bubble that has made new homes unaffordable for young families.

The China Evergrande Group is the largest and most visible of the long list of real estate developers in China. Is in serious financial trouble Recently. Other developers include Kaisa Group, China Aoyuan Property Group and Fantasia Struggled to pay Bond investors are cautious about lending to China’s real estate sector.

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As real estate companies try to save money, they start less construction projects. And this is a big problem for the economy. For example, the price of steel reinforcement rods for concrete in apartment towers fell by a quarter in October and November, before remaining very low in December.

The decline in house prices in small towns has affected the value of people’s property. Even in Shanghai and Beijing, apartment prices have not risen.

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There have been faint hints of renewed government support for the real estate sector in recent weeks.

Evergrande’s financial crisis is “a signal that money is being pushed from real estate to the stock market,” said Hu Jinghui, an economist and former head of the Chinese Alliance of Real Estate Agencies, a national trading body. “Policies can be relaxed, but not to the past.”

The recession in the housing market has also affected local governments, which rely on land sales as their main source of income.

The International Monetary Fund estimates that the sale of government land each year raises about 7 percent of the country’s annual economic output. But in recent months, developers have cut back on land purchases.

Due to revenue starvation, some local governments have stopped hiring and cut bonuses and benefits. Government employees, Provokes widespread complaints on social media.

In Hangzhou, the capital of Zhejiang province, a government employee’s complaint that his pay had been cut by 25 percent spread rapidly on the Internet. The municipal government did not respond to a request for comment. In northern Heilongjiang province, the city of Hekong announced that it would no longer employ any “low” workers. Corporation officials have removed notices from the government’s website after it caught the public’s attention.

Some governments have also raised business fees to make up for the shortfall.

The city of Bazhou in Hebei province has levied 11 times more fines on small businesses from October to December than it did in the first nine months of last year. The city of Beijing has been criticized for undermining a national effort to reduce the cost of doing business.

Is export Sets records. Families around the world have responded to being stuck at home during epidemics, spending less on services and now more on consumer goods made mainly in Chinese factories.

Some areas of consumer spending are very strong, especially in the luxury sector, where sports cars and jewelry sell well.

Some expect the government to allow a severe economic downturn this year ahead of the Communist Party Congress. Economists expect the government to ease lending restrictions and increase government spending.

“The first half of the year will be challenging, but the second half will be rebounding,” said Xu Ning, deputy dean of the Shanghai Advanced Institute of Finance.

Li Yu Research contributed.