Significant slowdown in China’s economic growth

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Economic growth in China is witnessing an expected slowdown due to the slowdown in the work of power plants, the renewal of the Covid-19 epidemic, which affected consumption, in addition to a decrease in fixed capital investment.

  • Slowing economic growth in China
    Slowing economic growth in China

Economic growth in China slowed down significantly in the third quarter of the year under the impact of the real estate sector crisis and power outages affecting supply chains, and the gross domestic product rose by 4.9%.

This slowdown was widely expected, but a group of analysts were betting on a little better than 5%. In the second quarter of 2021, China’s gross domestic product rose 7.9% compared to the same period last year, after a significant rebound in the January-March period of 18.3%.

The growth of the Asian giant’s economy did not exceed 0.2% compared to the previous quarter, at a much lower pace than in the period from April to June, when it amounted to 1.3%.

“This slowdown in growth is due to power outages, renewed epidemic in some areas, supply chain disruptions and a slowdown in the real estate sector,” said Rajiv Biswas of IHS Markit.

After emerging from the crisis of the Covid-19 epidemic, China is facing a sharp rise in the cost of raw materials, especially coal, which it relies on to operate its power plants, which threatens the recovery of its economy. As a result, the work of power plants slowed down despite the strong demand, which necessitated the rationing of the current and reflected an increase in the cost of production for companies.

In September, industrial production rose by only 3.1% at an annual pace, which is lower than that recorded a month ago (5.3%). Analysts had expected this slowdown, but in a more moderate way (4.5%).

Business bank Goldman Sachs warned UBS that the real estate crisis spreading to the rest of the economy could cost China’s growth one to two points, according to the “worst case scenario”.

In addition, in the past months, the authorities launched a campaign to curb what they consider disorderly growth of the economy. Several dynamic sectors were targeted, resulting in companies losing tens of billions of euros from their value in the stock market. This created uncertainty among investors and weighed on growth.

In the matter of health, this summer, China faced a resurgence of the epidemic, which affected consumption, but the situation has now been largely controlled. Retail sales rose by 4.4% in September, compared to 2.5% in August.

As for investment in fixed capital, its growth slowed sharply during the first nine months of the year to reach 7.3%. The Chinese government has officially set a growth target of at least 6% this year. As for the International Monetary Fund, it expected an 8% increase in the gross domestic product of the second economic power in the world.





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