China’s economic slump continues, oil prices plummet
A poll by the Caixin news service on Monday found that China’s economy was collapsing at the start of the second half of 2022, with slower manufacturing activity, higher unemployment and a depressed property market.
The weakening Chinese economy has reduced its demand for oil, combining with pessimistic manufacturing data from other countries to drive up oil prices down by four percent.
Caixin’s survey found that Chinese manufacturing activity slowed significantly in July – or perhaps even contracted – after the last round of coronavirus lockdowns ended in June and produced an exuberant increase in output.
China Beige Book International (CBBI), an investor advisory firm, said Factory output in July slowed to levels not seen since mid-2020 and unemployment in the retail sector hit a two-year high – signs that Chinese city dwellers and business leaders “just don’t believe their Covid Zero nightmare is over”.
“Retail is in the most trouble. The death of business is almost certainly happening in the sector now,” said CBBI chief economist Derek Scissors, highlighting fears that coronavirus lockdowns could to strike again at any time, without warning.
Other economic surveys found China’s property market fell 33% after rising 89% since lockdowns ended in June, gross domestic product (GDP) rose just 0.4% in second quarter and that consumers were jittery despite a modest 3.1 percent post-lockdown gain in retail spending.
Consumer spending could stagnate as weak factory output and high-profile layoffs leave many Chinese workers worried about their jobs. Some are taking advantage of a housing bubble to sell their homes for cash, making up for lost income due to downsizing and layoffs.
Analysts have compared the current situation unfavorably to China’s recovery from a market meltdown and banking scandals in 2015, as consumer spending continued to grow in 2015 from stagnation today. Additionally, today’s real estate industry has far-reaching and much-discussed issues that could prevent it from saving the rest of the consumer economy.
When struggling Chinese real estate giant China Evergrande Group failed to deliver its promised $300 billion restructuring plan over the weekend, analysts said CNBC the loss of confidence in real estate can create a “negative feedback loop” that drives the rest of the Chinese economy.
China’s real estate sector is already in the throes of an unusual “mortgage revolt”, with landlords refusing to make payments because they believe developers won’t complete construction and renovation projects.
“If this problem is not handled properly, it will have a profound impact on the economy, including the government’s balance sheet, the bank’s balance sheet as well as households,” Standard Chartered economist Shuang Ding told CNBC. .
Ding noted that the real estate crisis could cause significant damage to the Chinese government’s finances, as provincial governments obtain a large part of their revenue by taxing land sales. The impending collapse of titanic Evergrande is suffocating the market by spooking investors, while single-family homebuyers are venting their frustrations through the mortgage revolt.