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China’s Economic Troubles are Just Beginning

China Introduces Smart City

  • A worsening property slump and Covid lockdowns in July continued to curb business and consumer activity, dampening sentiment and deepening China’s slowdown.
  • China is still grappling with the fallout of its moribund real estate sector, which is estimated to account for around 70% of the economy by extension and 29% of GDP.

More gloomy economic data has come out of the world’s second largest economy with weaker-than-expected domestic demand and worsening Covid conditions as well as a power crunch, undermining China’s full-year growth outlook.

Goldman Sachs (-0.35%) lowered its projection for gross domestic product growth to 3% from 3.3% earlier, while Nomura (-0.83%) slashed its forecast to 2.8% from 3.3%, with both targets well below Beijing’s slated aim of achieving 5.5% growth this year looking increasingly aspirational.

A worsening property slump and Covid lockdowns in July continued to curb business and consumer activity, dampening sentiment and deepening China’s slowdown.

The People’s Bank of China, the central bank, which had so far held off on looser monetary policy, unexpectedly cut interest rates this week to help bolster growth, while local governments are set to sell more bonds to ramp up spending, all signs that the economic conditions in the Middle Kingdom are far more dire than officially reported.

Top Chinese economic officials have been downplaying the 5.5% GDP growth target recently, and have privately acknowledged that it’s unlikely to meet it this year, in order not to draw unnecessary attention to what is likely to be another public failure of Chinese President Xi Jinping’s administration.

Economists from Goldman Sachs wrote in a report to clients on Wednesday that July data “confirmed the lack of domestic demand,” with Covid-19 cases rising, power supply stressed due to the hot summer, and major new stimulus unlikely.

China is still grappling with the fallout of its moribund real estate sector, which is estimated to account for around 70% of the economy by extension and 29% of GDP.

Demand for real estate has been slow and homebuyers have held back on repaying mortgages for uncompleted projects, deepening the crisis.

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