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China’s economy slows, showing early signs of predicted global slowdown

Oct 18, 2021


According to numbers from China’s National Bureau of Statistics published Monday, the country’s economy grew at its slowest pace in a year in the third quarter. China’s GDP increased by 4.9 percent in the third quarter compared to the third quarter of 2020 when growth was almost 8 percent. In addition to missing analyst expectations, the number is also a whole 3 percent smaller than the second quarter’s year-to-year growth.

The two places where China is hurting the most are in the industrial sector and real estate. For the former, industrial production grew at its lowest rate since the start of the pandemic. Factory output, retail sales and investment in construction and other fixed assets all weakened. This comes a month after local authorities cut power to some factories over surging energy prices and electricity shortages.

The aforementioned construction comes as regulators force developers to cut reliance on debt that Chinese leaders worry is dangerously high. Construction accounts for millions of jobs in China.

As for real estate, growth is under threat after the country’s largest developer, China Evergrande Group, announced it is defaulting on its debt. Other property developers are now coming out saying they also can’t pay their debts.

The effects of Monday’s numbers were felt throughout Asia, as Asian shares were mostly lower Monday. The Shanghai Composite index lost 0.4% to 3,559.96 while the Hang Seng in Hong Kong declined 0.4% to 25,246.38.

According to some efforts, that effect could spread further. In a report, Mo Ji of Fidelity International said “ripple effects to the rest of the world could be significant” due to weaker Chinese demand for raw materials.

“Even developed markets, including the U.S., would not be immune to a significant tightening in global financial conditions as a result of a negative China growth shock accompanied by financial stress,” Ji said.

China’s economy is slowing just days after the International Monetary Fund (IMF) downgraded its expectations for economic growth in the United States and around the world. “We’re seeing major supply disruptions around the world that are also feeding inflationary pressures, which are quite high, and financial risk-taking also is increasing, which poses an additional risk to the outlook,” IMF economic counsellor Gita Gopinath said.

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