Bloomberg title: China Is Paying a Price for Its Economic and Pandemic Policies
By: Malcolm Scott
Date: 31 August 2022
“Opportunity Cost
The Law of Unintended Consequences is wrecking havoc on China.
And by the day, economists are turning more bearish as a result.
Raymond Yeung at ANZ Bank become the latest to slash forecasts for growth this year, down to 3% from his earlier 4% call, after new data showed factories continue to contract.
And it seems at almost every turn, a well-intentioned policy is only making the current economic woes even worse.
The desire to avoid a massive death toll stemming from an unrestricted wave of Covid 19 is crimping activity and shaking confidence.
Yeung said a likely tightening of the Covid-Zero strategy ahead of the Communist Party Congress in mid-October is among reasons for his outlook cut.
The desire to reduce speculation in the property market and rein in credit risks has whacked that sector. In a new report, Morgan Stanley economists led by Chetan Ahya say the housing market is at a “critical juncture.”
Their base case is that authorities will roll out policy support that limits the housing fallout. But doubts around that have led them to stress test a worst-case scenario where “negative feedback loops” see housing and the macro economy drag each other lower.
Meantime, the push to get banks to do their bit to help revive the economy is damaging their bottom lines, with the biggest lenders reporting slowing earnings growth and eroding margins. As reported by Bloomberg News last week, pressure on them to lend is leading to some unusual practices that end up doing very little to help the real economy.
It’s been clear for some time now that the former One Child Policy had created a demographic cliff.
But the fallout is occurring sooner than thought. With fewer births, Bloomberg Economics’s Eric Zhu says the population will start to contract in 2022, five years earlier than previously projected, weighing on growth prospects.
Then there’s the desire to rein in the power of tech giants — hardly a uniquely Chinese goal. That has ended up worsening employment prospects for the youngest and brightest as sector leaders from Alibaba to Tencent Holdings and Xiaomi this year began firing people by the thousands.
A record of almost 11 million new graduates are expected to flood the labor market this year, Bloomberg reports.
And with the tech sector no longer offering them as lucrative and exciting a career path as it once did, many will join the jobless ranks in an economy where one in five people between the ages of 16 and 24 are already out of work.
China’s policy makers knew there’d be a price to pay for de-risking the economy and boosting regulation and have argued that the cost of allowing Covid to spread through the community isn’t acceptable. Day by day, economists are waking up to that too and cutting forecasts as a result.”
0 Comments