Workers produce flexible printed circuit (FPC) adhesive tapes at a factory in Yancheng, east China’s Jiangsu Province, September 15, 2021.

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BEIJING – Nomura’s chief economist for China, Ting Lu, has cut his forecast for Chinese GDP growth this year as factories shut down to meet carbon reduction targets.

“Markets are now so perplexed by the fallout from the real estate sector that they could ignore Beijing’s unprecedented restrictions on energy use and energy intensity,” Lu said in a note Friday.

As a result, he expects China’s GDP to grow 7.7% this year, from 8.2% previously forecast.

Chinese President Xi Jinping announced in September 2020 that China will peak carbon emissions by 2030 and become carbon neutral by 2060. This has kicked off national and local plans to reduce the production of coal and other high carbon processes.

Meanwhile, concerns about the ability of indebted Chinese real estate giant Evergrande to stay afloat rocked global markets last week. The real estate market, along with related industries such as construction, account for more than a quarter of China’s GDP, according to Moody’s estimates released in a report in late July.

Fitch lowered its growth forecast for China to 8.1% on Thursday from 8.4% based on expectations. A slowdown in the housing market is putting pressure on domestic demand.

Other economists have yet to cut their GDP forecast for China for 2021, but see a growing number of brakes on growth.

  • Macquarie’s chief economist for China, Larry Hu, said in an email Monday that his estimate of 8.5% of GDP, made a year ago, “currently faces downside risk, taking into account the slowdown in real estate and the reduction in production “.
  • Bruce Pang, head of macro and strategic research at China Renaissance, said on Monday that the company had yet to change its GDP forecast by 8.4% either. But he said there could be a downward revision to 8.25% or 8.3% if the power shortage continues, affecting not only energy-intensive industrial manufacturing, but livelihoods. premises and even services.
  • Françoise Huang, senior economist at Allianz affiliate Euler Hermes, said in an interview Thursday that she is maintaining her GDP forecast of 8.2% for now, until she can get more than details on “how many [a] downward revision “it must do.

The central government set a much lower GDP target in March, at over 6% expansion for the year. Analysts noted that policymakers are much more interested in the quality of economic growth than in its pace.

“We believe it is unrealistic to expect China to maintain high and stable growth while Beijing causes substantial shocks on both the supply and demand side,” said Lu de Nomura. in his report on Friday.

Power blocking

On the supply side, he pointed to a “game changer” in mid-August when the national economic planning agency announced that 20 regions – accounting for around 70% of China’s GDP – had failed to reach carbon targets, prompting local authorities to take action quickly.

“Regarding demand shocks,” said Lu, “China’s recent and sweeping regulatory crackdown on internet platforms, fintech, video games, off-campus tutoring, ridesharing, privacy of data, food delivery, crypto miners and e-cigarettes have been important. The crackdown on off-campus tutoring could be particularly negative for growth in the third and fourth quarters of this year as the entire industry has been decimated “

He lowered the quarterly GDP forecast to 4.7% year-on-year growth in the third quarter and to 3% in the fourth.

China’s official third-quarter GDP release is slated for Oct. 18. The accuracy of government data is frequently questioned.

Impact of Evergrande and real estate

Chinese authorities’ efforts to reduce the heavy reliance on debt in the massive real estate sector over the past year have caused the shares of indebted developer China Evergrande to fall. The company has remained silent on an interest payment of $ 83 million on its US dollar-denominated debt that was due on Thursday. The company has a 30-day grace period.

If Evergrande’s problems cause residential real estate activity to slow by 10 percentage points, it could cause GDP growth to drop by around 1 percentage point, Morgan Stanley chief economist said on Sunday. for Asia, Chetan Ahya, citing an analysis by the company’s chief economist for China, Robin Xing.

Ahya added that the slowdown could lead to a drop in private consumption and a drop in real estate investment, which would subsequently reduce capital investment in related manufacturing sectors. “These ripple effects create downward pressure on growth as production cuts to meet energy intensity targets weigh on growth,” Ahya said. “Regulatory reset is weighing on corporate sentiment and consumption is softening due to intermittent Covid restrictions.”

If constraints on energy-intensive production persist, Morgan Stanley analysts expect fourth-quarter GDP growth to be pulled down by about 1 percentage point. The investment bank is currently forecasting 4.5% GDP growth in the third quarter compared to a year ago, and a slower pace of 4% in the fourth quarter.

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Wait for political support

As the negative factors mount, analysts expect Chinese authorities to ease policy and support growth.

“The government has not relaxed its policies because the economic pressure is not strong enough,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, said on Sunday. “In particular, the unemployment rate has been relatively stable and export growth has also been strong. The government may think it can afford to wait until the end of the year to relax its policies.”

He noted that the overseas market is not as worried about a hard landing in the Chinese economy compared to previous declines in the MSCI China Index.

The decline in stocks this year has not affected the yuan exchange rate, Zhang said. “The [is] no sign of capital outflow, and the gap between the offshore [yuan] exchange rate and onshore exchange rate has not widened. This shows that the current Evergrande incident has not caused panic in China’s macroeconomics in the international market. “

The MSCI China index has fallen more than 18% since the start of the year. It tracks stocks of Chinese companies traded on the mainland, Hong Kong and the United States.

The overseas-traded yuan has fallen about 0.66% so far this year. Its spread against the shore-traded yuan remained within an absolute range of 0.043 yuan, according to Wind Information.


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