The long-anticipated new global economic crisis has begun to take shape. Recent data on the economic state of the People's Republic of China indicate a slowdown in economic growth in the last (II) quarter, which was only 0.4%. Although this step for the Chinese economy is planned by the government, it still affects the global economic system.
Analysts are concerned about the situation in China's real estate sector, which may collapse due to the huge debt of companies and problems in the pipelines of the largest construction companies both in the country and in the world. Increasing defaults on mortgages from buyers are becoming a key issue.
The net volume of the slowdown is also a concern in China. If in the first three months of 2022, the economy grew by 4.8% year-on-year, in the second quarter, it amounted to only 0.4%. In total, in the first half of the year, China's GDP growth amounted to 2.5%, which makes it difficult to achieve the annual growth of 5.5% set by the country's government earlier.
Experts, such as Julian Evans-Pritchard, senior China analyst at Capital Economics, foresee negative scenarios for the situation in the coming months. In their opinion, in many places of the country, the growth rate will be about zero.
Tommy Wu, an analyst at Oxford Economics, follows Evans-Pritchard's example and is confident that China's GDP growth will slow significantly in the fourth quarter of this year, mainly due to the weak residential real estate market. Evans-Pritchard also points to the key economic consequences of the housing market downturn.
However, the downturn in the real estate market is being mitigated by a major exporter. But, given the expected decline in external demand for Chinese products, this mitigating mechanism may fail.
Amid the slowdown in the Chinese economy, the International Monetary Fund has warned about the risks to the global economy. In its report on the Worldwide Economic Outlook, the international organization stated that trends in the PRC economy and the deepening crisis in the real estate sector force the economic growth forecast to be revised to 1.1 points, which will have significant global consequences.
Time will tell if the deliberate market cooling strategy launched by the Chinese government to prevent overheating will work.
Causes of problems in the Chinese real estate market
If the global slowdown of the Chinese economy is the government's plan to cool and stabilize the market in anticipation of possible global shocks, the real estate market has some problems that aggravate the state of the Chinese economy.
One of the main causes of problems in the sector is Evergrande. Evergrande Group (Evergrande Real Estate Group) is the second developer in China in real estate sales, with a target audience of medium-high income clients.
The Spanish division of the New York Times said that Evergrande was "the world’s most debt-laden developer and has been on an artificial support device for several months." Its financial liabilities exceed $300 billion.
There are serious problems with non-payments to suppliers and shareholders, as well as the risk of leaving millions of citizens homeless. These and other problems have attracted serious attention to the company from the Chinese government, but its actions are difficult to predict. The Chinese authorities have given many signals that they can purge the national economy of toxic assets and companies, including allowing such "debt bombs" as Evergrande to go bankrupt.
The publication recalls that the Chinese real estate market has long been slowing down, losing solvent demand. The National Institute of Finance and Development, a leading think tank in Beijing, said that the booming national real estate market is "showing a turning point," citing the already mentioned weak demand and slowing sales.