Real estate, Covid, growth… Chinese economy stuck

Unable to trade shares of the Evergrande Group on the Hong Kong Stock Exchange: On Monday, March 21, the Chinese real estate giant suspended its listing for the second time since the start of the year to avoid a fall.

In theory, Evergrande should pay off the $2 billion bond in two days. Will he keep his promise? Already in early December, after the expiration of the previous deadline, the American rating agency Fitch announced this in “limited non-payment”. The developer owes more than $300 billion.

Systemic risk?

For the Chinese economy, the real estate sector is decisive: according to Barclays Bank estimates, a quarter of its annual growth depends on it. In recent months, the government has stepped in to help the group restructure its debt, as well as limit the activities of all promoters to avoid a cascading bankruptcy.

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Enough to ward off the ghost of the new Lehman Brothers? The Chinese authorities assured of their readiness to support the group. In addition, most of the group’s debt is owned by Chinese financial institutions with solid backs.

However, these elements are likely to worry Chinese citizens, whose consumption is already halfway there. Nine out of ten Chinese own their primary residence, which is the preferred investment for their savings: “About half of the developers’ resources come directly from the population, including through the mechanism for the sale of off-plan apartments,” recalled researcher Philippe Aguignet in a note by the Montaigne Institute.

Growth revised down

The outlook for the Chinese economy is worsening after a year of growth of 8.1%. “The economy has stalled due to a combination of factors” summarizes Françoise Nicolas, director of the Asian department of the French Institute of International Relations (Ifri).

“Zero Covid policy disrupts production and supply chains; the Ukrainian crisis triggers an explosion in fuel prices; attempts to clean up the real estate sector have cut the country off from a source of growth; a strong grip on power in certain sectors of activity, such as technology, makes companies wait and watch,” explains the researcher.

As a result, at the end of January, the International Monetary Fund (IMF) revised down the Asian giant’s growth prospects to 4.8%. The authorities are still counting on 5.5%. “Sounds very optimistic. explains Françoise Nicolas. The very strong growth observed in the country last year is associated with a catch-up effect. Since the fourth quarter of last year, growth rates have fallen sharply. »

Zero Covid trap

Export growth is expected to reverse in the coming months, symbolizing a slowdown in global factory growth. The latter took off with a bang, posting 16% growth in the first two months of the year, but the outlook is less rosy in the short term. Bloomberg is repeating the changes in the coming months.

→ EXPLANATION. In Asia, the limits of the “zero Covid” strategy

We are talking about hitches on the production side. The country has fallen into the trap of its “zero Covid” policy, which obliges it to hunt down and isolate the slightest case of the disease on its territory. It is also impossible not to see the failure of his vaccine when, according to the OECD (Organization for Economic Co-operation and Development), at least 80% of the population was vaccinated at the beginning of the year.

The city of Shenzhen, whose region is one of the country’s economic centers as it accounts for 11% of the country’s GDP, was reconfigured last week. There are many companies in the technology sector, such as the well-known Apple subcontractor Foxconn, which has closed for a week. “The company plans to create a ‘isolation within isolation’ for its employees to restart production,” explains Alexandre Hezez, strategist at Banque Richelieu.

Uncertain impact on inflation

“It is difficult to measure the impact of these difficulties on the global economy, he analyzes. On the one hand, a slowdown in Chinese growth should have a positive effect on the prices of raw materials, industrial metals or oil … But, on the contrary, the impact of Covid on Chinese production is more likely to push up the prices of some industrial goods and cause new pressures on supply chains. »

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Ukraine, calls to China

Kyiv once again called on Beijing on Monday, March 21, to play “important role” find a solution to the conflict with Russia. Ukraine and the United States are concerned about possible Chinese military aid to Russia, or that Beijing is helping Moscow get around Western sanctions. US President Joe Biden on Friday, March 18, held a video conference with his Chinese counterpart Xi Jinping. The White House mentioned, without specifying them, a possible response to Chinese aid to Russia. Xi Jinping maintained the ambiguity, saying on Friday that military conflicts are not “in nobody’s interest” and emphasizing that Ukrainian crisis (It was) not what we wanted to see”.

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