The Chinese administration denies the danger of stunted economic growth and prolonged deflation, but the central bank’s interest rate cuts signal genuine concern.
BEIJING There are conflicting interpretations of the state of China’s economy. The market is nervous.
It is new for China’s economic decision-makers, who are used to strong growth figures.
One of the country’s leading financial companies announced on Wednesday that it had run into payment difficulties. Zhongrong International Trust is no longer able to meet all the payment installments related to its investments.
Zhongrong has been a major financier in China’s construction industry. For years, rampant construction accelerated China’s economic growth, but at the same time the real estate market overheated.
More than 1,000 billion euros have been lost from the market in a couple of years. Tens of millions of new apartments are vacant in China.
Barclays lowered its forecast for China’s economic growth this year to 4.5 percent. Earlier, this English bank predicted a growth of 4.9 percent. Several other expert bodies doubt that China is not even capable of that.
China’s official goal for this year is five percent economic growth. It would flatter many other countries, but for the Chinese, who have been used to double-digit growth figures for a long time, the number is modest.
China getting in the way of Japan?
There are several factors that increase uncertainty. The real estate market accounts for about a quarter of China’s entire economic activity. Their decline also pushes down other prices.
China said last week that it had drifted into deflation in July, meaning that the prices of goods and services fell at an average rate of 0.3 percent.
China would be on the side of deflation during the corona period in 2020 and 2021. Now the fear is that China will drift into longer-term deflation like its neighbor Japan.
Japan suffered from falling prices and economic stagnation for more than a decade.
Statistics Finland is reassuring
China’s National Statistics Office, which publishes economic figures, tried to dispel concerns at a press conference it organized on Monday.
– The consumer price index did decrease in July from last year, but the phenomenon is most obviously short-term. There are signs of recovery in the economy. We believe that demand and supply in the market will gradually balance, a spokesman for Statistics Finland Fu Linghui said.
Statistics Finland’s assurances, however, did not convince the market. On Tuesday, China’s central bank lowered its key policy rate from 2.65 percent to 2.50 percent.
It was already the third rate cut in three months, and the market expects a continuation.
China’s currency, the yuan, has lost five percent of its value against the US dollar this year.