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As China’s economy rebounds, dangers lurk beneath the surface –



For TroubleMaker, a company in the southern Chinese city of Shenzhen that sits at the heart of the world’s biggest electronics market, the coronavirus pandemic has been particularly disruptive.

The firm is normally a hub for foreign startups looking to build prototypes of their upcoming products, providing a space for up to 2,000 people over the past four years to collaborate and build. The so-called “makerspace” is located next to Shenzhen’s Huaqiangbei area, a maze of shops and stalls offering nearly every kind of electronic component imaginable.

But international supply-chain disruptions, cratering overseas demand and the inability of most of its clients to return to China due to visa restrictions, have ground activity at TroubleMaker to a near halt. The firm’s troubles mirror the broader slump in the world’s second-largest economy in recent months.

“Basically, at the moment, the only new customers I’m taking on are companies that we can handle one-by-one, and that we’re sure we can service,” Henk Werner, TroubleMaker’s chief executive offer, told Al Jazeera.

Normally, about two dozen clients occupy TroubleMaker’s workshops at any one time. But now, the restrictions mean only a handful of staff and tech hopefuls in search of the next big thing are using its facilities.

More bad news ahead?

China is due to release data on Thursday showing how its economy performed in the second quarter, following a historic 6.8 percent year-on-year plunge in the first three months. That was China’s first economic contraction in gross domestic product (GDP) since at least 1992, and a second negative quarterly reading would officially spell its first recession in decades.

Most analysts predict China’s economy experienced a rebound in the April-June period as lockdowns at home and abroad eased, and activity in factories, ports, shops, and restaurants slowly resumed. But with domestic consumption remaining sluggish and exports failing to recover to pre-COVID-19 levels, the bounce is expected to be weak.

And the measures the government is taking to stoke growth now could leave deeper structural scars in the economy for years to come, analysts say. A poll of economists by the Reuters news agency shows a median estimate of 2.5-percent growth in China’s GDP in the second quarter compared with the same period last year, according to data provider Refinitiv. A Bloomberg poll published last month predicts growth of 1.5 percent, all of which suggests a wide range of expectations and a relatively high degree of uncertainty.

Analysts at global banking giant HSBC are even more bearish, with a 1.2 percent projection. “The economy has gradually recovered in April and May, though the pace of the recovery still remained uneven across sectors,” HSBC’s chief China economist Qu Hongbin said in a research note sent to Al Jazeera.

China faces difficulties on several fronts. Domestically, demand for consumer goods did rise over the quarter as lockdown restrictions eased, but a resurgence of COVID-19 cases in some areas, including Beijing, has kept some shoppers wary. And waves of job losses and pay cuts from earlier in the year have dented the spending power of consumers, to whom the government has increasingly turned in recent years to stimulate growth.

While domestic demand has somewhat recovered as China’s coronavirus curbs lifted, weak global appetite for China’s goods and geopolitical headwinds will continue to rattle its economy, analysts say [Tingshu Wang/Reuters]

“The biggest impact [from the outbreak] has been on the demand side, particularly through consumption,” Michael Pettis, professor of finance at Peking University in Beijing, told Al Jazeera.

A study conducted by the Chengdu-based Southwestern University of Finance and Economics released in early July found that of the 5,000 consumers surveyed, 52 percent said they would spend less in May than they did in March.

“Households are going to make less money this year than they did last year, in part because so many more of them are unemployed, and in part because many of the employed are going to earn less money,” Pettis said. And then there are challenges abroad.

Coronavirus cases in some of China’s major trade partners, including the United States, are soaring, even though many virus-control restrictions are being lifted. But analysts see demand for China’s exports remaining weak in the immediate future.

China customs data released in early June showed a 3.3 percent decline in exports compared with the same month the year before, with imports dropping a staggering 16.7 percent, the steepest drop since early 2016.

“The pain point of the economy are small manufacturers, and they usually produce for small exporters,” Iris Pang, chief economist for Greater China at Dutch bank ING said in a research note. “These two groups are expected to face an increased chance of a shutdown. Even though the People’s Bank of China set up an innovative re-lending programme for [small and medium-sized enterprises], they might not be willing to borrow if they can’t see orders coming,” Pang added.

Trade war worsens

All of this is happening against a backdrop of worsening political tensions between China, the US, and other trading partners. A new security law imposed on Hong Kong by Beijing has resulted in US President Donald Trump revoking Hong Kong’s special trading status in a retaliatory move against the Chinese government.

Meanwhile, one of China’s most important technology companies, telecommunications equipment giant Huawei, is being shut out of key markets in the US and, most recently, the United Kingdom, as they roll out their next-generation 5G mobile networks. Other US allies may be forced to follow suit. To stimulate growth back to pre-coronavirus rates, the Chinese government has reverted to an old model: spending big on infrastructure and other large-scale projects.

“The problem is that when you look at most of the measures Beijing is implementing, they are mostly supply-side – cutting corporate taxes, getting banks to lend more money, strengthening infrastructure and logistics – very little of it is on the demand side,” Peking University’s Pettis said.

Premier Li Keqiang said in a statement at a State Council meeting focused on economic recovery on July 8 that if the government can deliver on tax, fee and other fiscal support measures as well as infrastructure spending policies, then “businesses can get through this trying time”, according to state-run media reports.

“Beijing would have a hard time getting its beleaguered consumers to spend, especially the middle- and high-income urbanites. But the [Chinese Communist] Party is determined to do ‘whatever it takes’ to stabilise the economy and employment. So it’s back to old-style debt-fuelled investment-led growth!” Diana Choyleva, chief economist at research firm Enodo Economics, said in a research note published on the Smartkarma platform.

The key focus going forward, according to Li, will be on removing barriers to doing business and creating a “market-oriented, law-based, international business environment”.

Developing infrastructure in China’s western regions is at the top of the government’s agenda, partly to alleviate the concerns of unemployed migrant workers who were forced to return to their villages when they lost their city jobs earlier in the year. Li’s visit to Guizhou province during the first week of July, when he stressed the importance of job creation programmes to local governments, highlighted Beijing’s priorities.

Looming rural poverty

The government is also doing everything it can to reach a key goal of eliminating the worst rural poverty by the end of 2020. In mid-June, China’s National Bureau of Statistics confirmed that more than 40 percent of the population gets by on only approximately $140 per month, a controversial statistic floated by Li at annual National People’s Congress meetings in May. But all these measures come with potential long-term risks.

China rural poverty

Tackling rural poverty remains a priority for Beijing, but any measures taken may pose possible long-term risks [File: Carlos Barria/Reuters]

One consequence of its stimulus measures has been a surge in China’s stock market, which continues to be flooded with new investors, gambling on hopes of a strong recovery. The Shanghai Composite stock index of leading mainland companies has jumped more than 28 percent from its trough in March.

The increased interest in stocks has led to a rise in the number of people borrowing money to get in on the action. China’s securities regulator was forced to issue a notice against so-called margin trading to more than 250 unlicensed traders. Similar practices led to a boom, then bust, in asset prices between 2014 and 2015.

Meanwhile, bank lending increased 13.2 percent in June, which has been seen as a further sign of economic recovery. But it has also raised question marks over the sustainability of all this additional debt.

Added debt

A recent report by the Fitch ratings agency estimates that general consolidated government debt will increase to 11.2 percent of GDP, up from 4.9 percent last year, indicating “a much larger degree of fiscal deterioration” than seen in the government’s headline deficit figures.

In early July, Guo Shuqing, chairman of the China Banking and Insurance Regulatory Commission, urged banking and financial institutions to tighten up their practices after a series of bank runs in provinces like Hebei and Shanxi, as well as problems at investment institutions in other provinces.

A concern for Peking University’s Pettis is the continued growth of China’s debt to GDP ratio, which likely now stands at about 279 percent, and which he believes will eventually lead to some kind of reckoning. “There’s never been a case in history where a country has that high of a ratio without it ending in either a crisis, which I think is very unlikely in China, or a long period of stagnation, which I think is much more likely,” Pettis said. “Once the debt can no longer rise, then growth rates will drop very, very sharply and they will stay down for a long time,” he said.

But even with all the challenges, some entrepreneurs are still finding opportunities to expand, tapping into China’s long-held promise of growth for those willing to take a bet on its enormous domestic market.

Duncan Turner, managing director of the HAX startup accelerator in Shenzhen – stuck in Hong Kong throughout most of the outbreak – said his company, like TroubleMaker, is also being forced to pivot from in-person programmes to a more virtual business model. But despite this, he is still finding demand for his services. “We normally invest in about 36 teams per year, and we actually did quite a lot in the first quarter, which means we’ll end up with around 30 teams by the end of the year,” Turner told Al Jazeera.

Anything related to digital health, childcare and education, automation, working from home and contactless delivery services are all seeing major interest in the startup world, he said. The key, Turner says, is speed, and being to adapt to rapidly changing circumstances.

That sort of nimbleness is something even the Chinese government will have to embrace as the global economy shifts in ways that could not have been foreseen just months ago.

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Charting the Global Economy: Recession Recovery Is Wildly Uneven – BNN



The world’s economic recovery is wildly uneven — and that again was on display this week.

U.S. data on the eve of the Thanksgiving holiday offered signs of both strain and strength, while Germany’s resilience was again on display in European PMI numbers — even amid new lockdown measures that have knocked the economy back.

No matter where in the world you are, the economic consequences of the pandemic are falling disproportionately on the young. Though if you could chose where to weather the crisis, a new scorecard suggests New Zealand should be high on the list.

Here are some of the charts that appeared on Bloomberg this week on the latest developments in the global economy:


U.S. business activity is powering ahead and housing market remains red hot. The annualized rate of new-home sales has averaged 1 million from August through October, the strongest demand since 2006, and a increase in builder backlogs suggest residential construction will remain robust through at least the end of the year.

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Still, some of the ground looks shaky. Americans’ income declined more than forecast in October, the number of people applying for state unemployment benefits unexpectedly increased in consecutive weeks for the first time since July, and consumer sentiment dipped to a three-month low.


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European economies are contracting again as the latest coronavirus restrictions take a massive toll on services. The Purchasing Managers Index for the euro area slipped back into contraction in November, as did the U.K. Germany, however, is coping with the latest restrictions relatively well.

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U.K. Chancellor of the Exchequer Rishi Sunak sought to balance more jobs support with controversial spending cuts this week to get control of the government’s pandemic debts. According to Bloomberg Economics, the U.K. will struggle to avoid economic scarring, though the hit will probably be smaller than from previous recessions. That’s in part because of the scale of the policy response.


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Australian Prime Minister Scott Morrison is trying to break a standoff with China that has stalled delivery of more than US$500 million worth of coal from the world’s biggest exporter as tensions between the two trading partners mount.

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China’s economic recovery stabilized in November, underpinned by solid global demand for exports ahead of the Christmas period and the stock market’s gain to its highest since 2015.

Emerging Markets

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Consumer prices in Latin America’s two largest economies diverged in early November, complicating Brazil’s plans to hold its benchmark interest rate at a record low while suddenly giving Mexico space to cut.

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Bloomberg Economics doesn’t expect Nigeria’s recovery to gain momentum until next year, when the deep oil production cuts agreed in 2020 are eased and the emergence of a vaccine lifts global demand.


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In 2019, the U.S.-China trade war blew a hole in global growth, in 2020, the pandemic caused a historic crash, but 2021 could be the year when U.S.-China ties stabilize and a vaccine draws a long-awaited line under the Covid crisis, according to Bloomberg Economics.

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While the people at greatest risk of suffering severe cases of Covid-19 are of retirement age, the economic fallout has been greatest on the young. A look at unemployment rates across Group of Seven economies shows how severely the crisis has hurt 15-24 year olds.

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Bloomberg crunched the numbers to determine the best places to be in the coronavirus era. New Zealand had the highest score. Japan, at No. 2, was the only G-7 country to make the top 10.

–With assistance from Dan Hanson (Economist), Tom Orlik (Economist), Björn van Roye (Economist), Catherine Bosley, Sophie Caronello, Rachel Chang, Eileen Gbagbo, Max de Haldevang, Mario Sergio Lima, Alex Morales, Jason Scott and Kevin Varley.

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Province reports lower deficit, touts recovering economy in mid-year report –



The provincial government released its mid-year report today and projected a deficit almost $400 million lower than expected. 

Earlier this year, the provincial government forecasted a $2.4 billion deficit but today’s report showed that to be sitting around $2 billion, an improvement of $381.5 million from this year’s budget.

Revenue projections also saw an increase, to the tune of $503.5 million, or 3.7 per cent from the provincial budget announcement.

“The increase from budget is due to higher federal transfers, higher government business enterprise net income and higher non-renewable resource revenue,” a statement from the Ministry of Finance said. 

Tax revenues were projected to decrease by $41.2 million as a reduction in the small business tax rate was factored in. Other tax and own-source revenue forecasts were unchanged from the budget.

Expenses were forecasted to be $16.2 billion, an increase of $122 million, or 0.8 per cent. The increase covered money for the health, education, municipal and tourism sectors and was partly offset by lower-than-budgeted pension expenses and crop insurance claims expenses.

The mid-year forecast included the impacts of the government’s election commitments, totalling $91.7 million.

Finance Minister Donna Harpauer said $260 million was set aside as contingency, which she said is a substantial cushion that’s built in for the remaining six months of the year. She said data from the first six months of the year will help guide the province through the remainder of the year. 

She noted that the contingencies are set aside to protect the healthcare system and said the province will do “whatever it takes” to ensure the system is supported through the COVID-19 pandemic. 

“There is no way to say what the magic number will be … compensation salaries is going to be a big part of that, and that is something that we couldn’t pre-pay,” Harpauer said on Friday. 

“At 160 million, that will deal with quite a bit of that pressure for the next few months.” 

In reflecting on the numbers, Harpauer said she was pleased to see the provincial economic indicators were stronger than what was initially anticipated. 

She said she’s concerned because the province is reliant on two items in particular: consumer confidence and trade. Consumer confidence is affected by COVID-19 numbers, she said, and because the province is trade-dependant, Saskatchewan is heavily affected by what happens in other jurisdictions in Canada and around the world. 

“I will always have a nervousness for those two factors because they will affect this budget in a big way,” Harpauer said. 

Drop in public and net debt

The ministry said public and net debt are both down compared to the budget’s forecasts.

Estimates showed Saskatchewan’s net debt-to-GDP ratio, as of March 31, 2021, would be at 19.6 per cent, one of the lowest in the country, and the ministry touted Saskatchewan’s credit rating as the second-highest in Canada.

“Saskatchewan’s economy has performed better than originally anticipated in the June 2020 budget,” Harpauer said in the provncial release.  

“Real GDP is forecast to decline 5.0 per cent, compared to a decline of 6.3 per cent forecast at budget. Saskatchewan’s unemployment rate was the lowest in Canada in October and total employment, on an unadjusted basis, is nearing pre-pandemic levels.  As a result, our planned path to balance in 2024-25 is unchanged.”

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Bank of Canada says vaccine could cause economy to rebound faster than expected –



By Julie Gordon and David Ljunggren

OTTAWA (Reuters) – Canada’s economy could rebound faster than expected if consumer spending jumps in the wake of a successful coronavirus vaccination effort, Bank of Canada Governor Tiff Macklem said on Thursday.

On the other hand, if the economy weakens amid a second wave of infections, Macklem indicated the central bank could if necessary cut already record low interest rates.

In late October, the bank said it assumed a vaccine would not be widely available until mid-2022. Since then, several manufacturers have announced potential vaccines that could be distributed starting early next year.

“It is possible, especially when there is a vaccine, that households will decide to spend more than we have forecast and if that happens the economy will rebound more quickly,” Macklem said in response to questions from the House of Commons finance committee. He described the news about vaccines as promising.

In late October, the bank forecast the economy would not fully recover until some time in 2023, a forecast Macklem repeated in his opening remarks.

The path to recovery still faced risks, he said. Earlier this year the bank slashed its key interest rate to 0.25%.

“We could potentially lower the effective lower bound, even without going negative. It’s at 25 basis points, it could be a little bit lower,” Macklem said, repeating that negative interest rates would not be helpful.

The U.S. Federal Reserve has a target for its key rate of 0 to 0.25%. The Reserve Bank of Australia this month cut its policy rate to 0.1%.

Some other central banks also have benchmark rate that are less than 0.25%, such as the European Central Bank and the Bank of England.

“We want to be very clear – Canadians can be confident that borrowing costs are going to remain very low for a long time,” Macklem said.

(With additional reporting by Fergal Smith in Toronto; Editing by Rosalba O’Brien, Tom Brown and Aurora Ellis)

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