Economic analysts warn that Beijing is on the path of a sharp slowdown in the coming years as Beijing wrestles with the Evergrande debt crisis, and the impending slump is in other parts of the world. He added that it should serve as an awakening to.
But the country’s shrinking economy may not be immediately apparent, said Leland Miller, CEO of economic forecasting firm China Beige Book International. With the expected third season of Chinese leader Xi Jinping and the Beijing Winter Olympics at stake, the administration will do its utmost to postpone politically damaging news at least until after next year. He said it would be.
But, according to Miller, it’s only a matter of time before such results become more apparent.
At a recent virtual panel event hosted by Hudson, Miller said, “Whether this will happen in the next few years, or more than a decade, will be a political decision, but growth has slowed and is very dramatic. It will be the target. ” Laboratory.
China’s economy is growing at the slowest pace of the year, given power shortages, supply bottlenecks, sporadic outbreaks, and a slowdown in the real estate sector. Gross domestic product growth in the third quarter was 4.9%, down 3 points from the previous quarter, worse than the forecast already revised by analysts.
Evergrande, a leading Chinese developer in the industry, which accounts for nearly one-third of GDP, suffered over $ 300 billion in debt and missed three bond payments in less than a month. The risk from a potential imminent collapse may be contained, but the crisis is a clear sign that China’s growth model is changing in a slower direction, Miller said.
Unlike the rest of the world, China has a non-profit financial system, and the government controls all business entities, he said.
In the short term, Beijing’s collapse of a company puts pressure on the entire financial markets, pushing credit to sustain the economy and instructing state-owned companies to absorb unpaid debt. We have a way to prevent it from changing into “moments.” But in the long run, investing in zombie companies and “chasing good money after bad” will stall growth, Miller said.
There are no obvious fixes. The Chinese press has been driving the transition from investment to consumption-fueled economic models for years, but such a message is simply a verbal service, “Government to do this. I’m not doing anything structurally, “he said.
According to Miller, one way to create a wave of consumption is to strengthen the currency by giving households more purchasing power. Authorities can also put national assets into the hands of individuals and expand social welfare programs for the poor. But most of Beijing’s policies have had the opposite effect of directing China towards a consumption-led economy, he added.
According to Miller, Evergrande is basically run on a Ponzi scheme. Raise money by promising an ever-growing number of apartments to Chinese families and use the money to repay packages packaged as high-interest investments. However, this growth-borrowing model was suspended after authorities launched policy restrictions in August last year, limiting the amount of debt that real estate companies could bear.
Miller explained that de-leveraging the housing sector was a driving force for Xi’s “common prosperity”, which he explained as part of the administration’s crackdown on tech giants and changes in social contracts between the party and the Chinese people. I think they are almost the same.
“Sure, it’s the party to the right of them taking advantage of the very popular social issues,” he said, while the administration sees these companies as “dollar boxes.”
“But broadly speaking, the idea that big Chinese companies have huge wealth and they remain ring fences while the party is desperate to raise money is unrealistic.” He added. For some reason, they intend to give back to the party. “
Miller said lack of funding has forced the party to “be creative”, authorities have moved party members to the board of directors of large corporations, and some local governments are becoming minority shareholders. Said there is.
Countries that have relied on China’s huge “credit wave” to revitalize their economies since the financial crisis, according to Miller, now need to prepare for a paradigm shift.
“There was this belief that China’s growth could go against gravity forever,” he said. “They aren’t planning their lives after that, and they should welcome it.”
The Evergrande crisis suggests different growth models for China, “if not prepared, we would treat some countries on the planet in a very harsh way,” he adds. rice field.