Economic growth slows due to construction slowdown

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of china Economic growth comes under pressure from construction slowdowns and power outages, warning trading partners and global financial markets of a possible shock.

The world’s second-largest economy grew by 4.9 percent in the three months ended September, weaker than a year ago, government data showed.

Factory production, retail sales and investment in construction and other fixed assets all weakened.

China’s economic growth has shrunk with a construction slowdown to blame. (AP)

Production has been disrupted by official restrictions on energy use and shortages of processor chips and other components due to the coronavirus pandemic. Construction, an industry that supports millions of jobs, is slowing as regulators force developers to cut reliance on debt that Chinese leaders worry about.

Mo Ji of Fidelity International said in a report that “ripple effects for the rest of the world could be significant” due to China’s weak demand for raw materials.

“Even developed markets, including the US, will not be immune to a significant tightening in global financial conditions as a result of the negative Chinese growth shock accompanied by financial stress.”

Compared to the previous quarter, production barely grew in the July-September period, increasing only 0.2 percent compared to how other major economies are measured. That was 1.2 percent in the April-June period and one of the weakest quarters in the last decade.

The world may face significant “ripple effects”. (AP)

The slowdown is putting pressure on Beijing by relaxing debt controls and spending more on public works. But forecasters said that even if that happens, activity will weaken before policy changes take effect.

“Growth will slow further,” said Louis Kuijs of Oxford Economics in a report.

Chinese leaders are trying to steer the economy towards a more sustainable growth based on domestic consumption rather than exports and investment, and reduce financial risk.

Construction and home sales, a major source of demand for steel, copper and other industrial imports, slowed as regulators ordered developers to lower their debt levels.

The Evergrande Group, one of the largest, is struggling to avoid defaulting on US$310 billion (US$418.26 billion) it owes to banks and bondholders. While economists say the threat to global financial markets is small, this has raised fears about other developers.

A girl wearing a face mask to protect herself from the coronavirus rides a scooter past the Chinese government’s propaganda “Chinese Dream” billboard displayed along an under-construction commercial office building in Tongzhou, on the outskirts of Beijing, Monday, October 4, 2021. The economy is slowing as the ruling Communist Party curbs corporate debt and energy use, but President Xi Jinping’s government is sticking to campaigns he says will lead to more stable growth in the long run. (AP Photo/One (AP)

Factories in some provinces were ordered to be closed in mid-September to avoid exceeding official targets for energy use and energy intensity, or amount used per output.

Some warnings are that deliveries of goods may be delayed, increasing the likelihood of shortages of smartphones and other consumer products ahead of the Christmas shopping season.

Factory production barely grew in September and rose only 0.05 percent compared to August. This was below the 7.3 percent growth in the first nine months of the year.

Private sector forecasters have lowered their growth forecasts for China this year, but still expect around eight percent to be among the strongest in the world.

That said, China’s growth this year is still expected to be among the strongest in the world. (AP)

The official target of the ruling Communist Party is “more than six percent”, which leaves room for Beijing to keep the controls in place.

Rajiv Biswas of IHS Market said in a report that the short-term outlook “continues to be difficult”. Real estate also suffers from “fear of contaminating some other property developers”.

This year’s economic figures seem exaggerated compared to 2020, when factories and stores were closed to combat the coronavirus.

Production increased by a record 18.3 percent in the first quarter of 2021, but forecasters said the recovery was already stabilizing.

A real estate sector fallout will continue to drag growth down. (AP)

In September, growth in retail spending fell from 16.4 percent in the first nine months to 4.4 percent a year ago.

Investments in real estate, factories, housing and other fixed assets rose 0.17 percent from 7.3 percent in the first nine months of September.

Fidelity’s Mo said the latest figures show “the decline in the property sector will be a significant drop in growth in the coming quarters”.

“Even significant policy easing, still unlikely in our view, will take time to propagate into the real economy.”

Auto sales in the global industry’s largest market fell 16.5 percent in September compared to the previous year, according to the China Automobile Manufacturers Association. The group said production was interrupted by a lack of processor chips.

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Imports, an indicator of Chinese domestic demand, rose 17.6 percent year-on-year in September, but that was about half of the previous month’s 33 percent growth.

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