Many Chinese developers have stopped or delayed the construction of pre-sale homes due to cash flow problems. The picture shows a real estate construction site in Jiangsu Province, China, on October 17, 2022.
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China’s economy is in trouble.
China’s real estate market is collapsing, deflationary pressures are spreading across the country, and its stock market has also experienced turmoil so far this year, with the CSI 300’s market value down about 40% from its 2021 peak.
To make matters worse, January PMI data released by China’s National Bureau of Statistics showed that manufacturing activity shrank for the fourth consecutive month due to declining demand.
A flurry of downbeat data has sparked a wave of skepticism about the world’s second-largest economy.Allianz is among those that reversed its optimism on China and now predicts Beijing’s economy will Average growth 3.9% Between 2025 and 2029. This is down from the 5% forecast before the Covid-19 pandemic hit.
Eswar Prasad, a former official at the International Monetary Fund, also said Tell Nikkei Asia “The likelihood that China’s GDP will one day surpass that of the United States is declining.”
Meanwhile, top economist and Allianz consultant Mohamed El-Erian highlighted that Chinese stocks have underperformed compared with U.S. and European equities. Chart on Xsaid this showed clear differences between all three stock markets.
However, China itself is unwilling to admit that its economy is in trouble. Chinese leader Xi Jinping said on New Year’s Eve that the country’s economy “has become more resilient and dynamic this year.”
Fueled by this optimism, it’s fair to say there are some signs of hope for the struggling economy, but they may not be enough to sway the bears. For example, factory activity in China expanded for a third consecutive month in January, while the country’s luxury goods industry appears to be recovering.
The data sparked upbeat discussions among investors and showed a clear lack of unity in the consensus on China.
stagnation era
Nobel Prize winner Paul Kluman is one of the most pessimistic voices about China. He said that China is entering an era of stagnation and disappointment.
Kluman wrote in a recent article that China should have prospered after lifting strict “zero-COVID” measures New York Times Column. But the opposite is true.
Kluman believes the country is facing headwinds from all directions, from poor leadership to high youth unemployment. Kluman warned that the country’s economic downturn was not isolated and could become a problem for everyone.
property crisis
China’s well-known real estate problems have been the crux of Wall Street’s bearish sentiment on the Asian country.
The International Monetary Fund said it expected housing demand to China will decline by 50% in the next ten years.
Speaking at the World Economic Forum in Davos last month, International Monetary Fund Managing Director Kristalina Georgieva said China’s real estate sector needed to be “fixed” and that Beijing needed to make structural changes reforms to avoid falling growth rates.
Meanwhile, Kyle Bass, a prominent hedge fund manager and founder of Hyman Capital in Dallas, said the country’s debt-ridden housing market has triggered a wave of defaults by public developers.This is a question given that China’s real estate market can account for one-fifth of the country’s GDP.
“This is like the U.S. financial crisis,” Bass said, referring to China’s default-ridden real estate market.
“No matter what regulators say ‘we will protect individuals from malicious short selling,’ things are going to get worse in China,” he added.
“The fundamental structure of the Chinese economy is broken,” Bass continued.
glimmer of hope
However, not everyone shares China’s pessimistic outlook.
The Institute of International Finance stated that Beijing has the policy capacity to promote China’s economy to realize its growth potential and adheres to the above-mentioned consensus forecast of economic growth of 5% in 2024. Recent blog posts. However, this view depends on sufficient demand-side stimulus. China’s latest GDP data for the last three months of 2023 was 5.2%, lower than analysts’ expectations.
Meanwhile, Marko Papic, partner and chief strategist at Clocktower Group, is optimistic about the short-term view of the Chinese stock market. In an interview with CNBC on February 7, Papik said he expected Chinese stocks to rise by at least 10% in the coming days as officials expressed support to boost the faltering stock market.
Papik said, “China’s stock market may rise by 10% to 15% in the coming trading days.”
JPMorgan Private Bank also outlined a bull market scenario for China in a report recent posts. “Despite declining stock market sentiment and continuing problems in the real estate market, some areas of the Chinese economy have also proven their resilience,” the report said.
China’s key role as a global manufacturer is unlikely to wane, the bank said, adding that cyclical demand for its exports is likely to remain intact.
Looking ahead, China still has many obstacles to overcome. Whether it has enough firepower to do so, however, remains to be seen.
