No easy fix for China as economy slows more than expected

A series of surprisingly weak Chinese economic data this month prompted policymakers to deliver more stimulus, but it also shows the limited effect more monetary easing and infrastructure spending can have. Signs of weakness are emerging across the economy: exports have fallen; inflation has slowed; new bank loans fell.

And all this despite the authorities reversing the global trend so far this year and rolling out monetary and fiscal easing measures this year. Analysts say weak data could increase pressure on policymakers to provide even more stimulus – analysts at JPMorgan and Goldman Sachs said in research notes on Friday that they expect lower rates of 25 basis points in the coming weeks.

In this still image from video provided by UN Web TV, Chinese President Xi Jinping addresses the 76th session of the United Nations General Assembly remotely in a pre-recorded message, Tuesday, September 21, 2021, at the headquarters of the UN. (UN Web TV via AP / AP Pictures)

But the latest figures also suggest that the stimulus would not have the desired impact as long as domestic and external demand remains subdued, especially as China pursues a policy of eradicating COVID-19 outbreaks as soon as they arise. occur.

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“Significantly weaker-than-expected credit growth … underscores the challenges policymakers face in stimulating growth as activity is suppressed by zero-COVID,” said Mark Williams, chief Asia economist at Capital Economics. China is on course to miss its annual growth target of around 5.5% – the latest Reuters poll predicts 3.2% growth for 2022.

Exports unexpectedly fell in October for the first time since May 2020. Chinese manufacturers, who dominate global trade, had already failed to get the typical pre-Christmas boost over the summer. Now, the usual year-end shipping surge that comes as overseas customers load orders ahead of the Lunar New Year break in January-February is also in doubt.

A decline of nearly 12% in the yuan against the dollar so far this year has not been able to prevent exports from contracting. demand for credit could come even if rates are reduced.

In this photo released by China’s Xinhua News Agency, Chinese President Xi Jinping speaks at the annual Central Economic Work Conference in Beijing. The ruling Communist Party has called for faster technological development to boost China’s economy (Huang Jingwen/Xinhua via AP/AP Images)

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The bursting of China’s massive property market bubble – which accounted for a fifth of economic activity at its peak – is also preventing home buyers and banks from re-engaging in deals. Thursday’s data showed new bank loans in China fell more than expected in October from a month earlier, while broader credit growth slowed.

“The fourth quarter is usually a quiet time for lending and credit, but this data set for October is just too weak,” said Iris Pang, chief economist for Greater China at ING. “With the (manufacturing) and trade data, we believe there could be a bigger slowdown than expected during the month. “Local media reported that Chinese authorities have authorized local governments to anticipate part of their 2023 special bond quotas for such projects. But the main short-term headwind remains China’s zero-COVID policy, while the longer-term drag remains domestic demand.

Chinese President Xi Jinping applauds during the opening session of the National People’s Congress (NPC) of China at the Great Hall of the People in Beijing, Friday, May 22, 2020. (AP Photo/Ng Han Guan, Pool) (AP Photo/Ng Han Guan, Pool/AP Images)

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China on Friday gradually relaxed some of its COVID rules, raising hopes that bigger measures may be in the works. Read more “COVID curbs have significantly affected consumption and investment,” said Wang Jun, director of the China Chief Economist Forum. “As COVID restrictions become more targeted and looser, the pressure on consumption may ease.”