The music is slowing down in China.
Continuing the spree of bad news, economists and other observers, globally, have revised the GDP outlook for 2022 to 3.2 per cent against Beijing’s official target of 5.5 per cent.
Attributing the downgrade to President Xi Jinping’s Covid-zero lockdowns, the economists made the calculations in a survey conducted by Nikkei last month.
The forecast is for the GDP growth to be anywhere between 2.2 per cent and 4.1 per cent, depending on the numbers of the final two quarters. The same survey put China’s GDP forecasts for 2022 at 5 per cent in March 2022 and 4.1 per cent in the June survey.
Compared to the second quarter when the economy grew at 0.4 per cent, the observers are more optimistic about Q3, citing less number of lockdowns, investment in manufacturing and production, and even automobile sales.
However, the Achilles' heel for Beijing is the real estate sector which is dwindling in sales, defaulting on bond payments and creating a mortgage crisis.
In March 2022, some of these bonds were paying a 32 per cent yield, higher than what was in 2008. In the last few quarters, the quantum of dollar bonds issued has also come down significantly, compared to 2018 and 2019.
Earlier this year, buyers launched a protest, an unthinkable in China, stating that they would not make their monthly mortgage payments until the projects were completed. The dent in the real estate market is also hitting retail sales across China.
Covid-zero lockdowns have sent China’s economy for a toss in 2022. At the Shanghai Port, the number of containers processed in April 2022 was the third-lowest since January 2019, at around 3.1 million.
In January 2022, before the lockdowns kicked in, the port processed 4.4 million containers, the highest in over three years. April 2022 has been the worst month for the Shanghai port since February 2020, when it processed merely 2.3 million containers.
These disruptions have sent the supply chains for a toss, forcing companies to diversify.
Apple has already announced that it is diversifying its production of AirPods and Beats products, moving them out of China. For 2022, Tesla, Toyota and Volkswagen have revised their projections as delay in delivering key raw materials disrupts their production.
A survey released in May 2022 by the European Union Chamber of Commerce in China highlighted the concerns. Of more than 350 companies surveyed, nearly 60 per cent are looking at decreased revenue projections for 2022.
There are also several economists predicting that the forecast could be below 3 per cent for 2022. For Jinping, who shall begin his third term later this month, these are ominous signs, for the economic crisis in China is yet to peak.
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