Crushed by $300 billion in debt, Evergrande, one of China’s biggest property developers, is sliding toward bankruptcy. This has prompted fears of a wider property crash or even a financial crisis.
But this is hardly the only crisis besieging the government of Xi Jinping. An unexpected electricity shortage threatens to slow down manufacturing. And for the past year, the government has waged a fierce campaign to regulate China’s vibrant internet companies, spurring hundreds of billions of dollars in investor losses.
The common feature of these crises: All were triggered by government policies. In the eyes of Beijing, these policies are meant to fix deep structural problems in the economy and lay more solid foundations for future growth. To many outsiders, they represent a dispiriting retreat from the market-oriented reforms of the past and signal the end of China’s long economic boom. But forecasts of China’s doom are most likely mistaken, as they have so often been.
True, in the latest quarter, economic growth slowed to a crawl, growing by just 0.2 percent compared with the previous quarter. The next several months will be rockier still. Slower growth in China is unwelcome news for a global economy struggling to regain its footing after the disruptions of the Covid-19 pandemic. But over the next few years, China is likely to regain momentum — in part because of the hard work it is doing now.
The biggest immediate worry is the collapse of Evergrande. Like most Chinese property developers, it relies on two key funding sources: deposits paid by home buyers before construction and huge amounts of debt.
Evergrande’s woes result from a government campaign begun last year to force property developers to reduce their liabilities. It is the latest move in a five-year effort to bring the country’s debt under control. According to the Bank for International Settlements, China’s gross debt level, at 290 percent of G.D.P., has doubled since 2008. While that level is comparable with that of rich countries with well-developed financial systems, it is high for a middle-income country. China’s leaders know that to avoid a financial crisis or avoid a repeat of Japan’s stagnation of the 1990s — the aftermath of a big debt-fueled property bubble — growth in the future must be far less reliant on debt than it has been.
The problem is that by attacking debt in the property sector, regulators risk shutting off a powerful engine that directly or indirectly affects as much as a quarter of China’s economic growth. Problems are spreading beyond Evergrande. Other developers are having trouble repaying their debts. And the sales and construction of new housing are both falling.
The drive to cut real estate debt will almost certainly depress China’s growth in the coming quarters. But it will not lead to a “Lehman moment,” when the implosion of a single heavily indebted company triggers a broader financial or economic collapse: The country has an enormous pool of savings. And the government is now adept at managing meltdowns of major companies, including the private conglomerates HNA and Anbang, Baoshang Bank and Huarong, a huge state-owned asset manager.
The larger question is whether China can maintain a dynamic economy when its government, under Mr. Xi, seems increasingly intent on meddling in the market. The answer: Despite a desire for more state discipline, China has not rejected markets — dynamism will continue.
Some of this state meddling is prudent. The property crackdown is part of a serious drive to cure the economy’s addiction to debt. Similarly, the power shortages that have plagued much of industrial China are due largely to efforts to slash the country’s reliance on coal. China has said that its carbon emissions should peak by 2030 and then decline, with a goal of reaching carbon neutrality by 2060.
One response to the energy shortage has been a long-overdue deregulation of electricity prices. This has allowed generators to pass on some of the impact of higher coal prices to end users. So it is not true that Mr. Xi’s government is implacably anti-market. Beijing, as it has for decades, will continue relying on a combination of state guidance and market forces: The state sets the direction for investment, with day-to-day outcomes dictated by the market.
A more serious concern is the yearlong offensive against privately owned big tech companies, notably e-commerce and the financial technology giant Alibaba, and the ride-hailing company Didi. It’s unclear whether China can ever become a true leader in innovation if it insists on squashing its most successful entrepreneurial businesses.
Yet even here, the story is not black-and-white. The internet crackdown is not really about crushing private enterprise: Private companies in many sectors, including tech hardware, are doing just fine. Rather, the crackdown addresses — in a very authoritarian way — the same anxieties about big tech that governments around the world are grappling with: unaccountable power, monopolistic practices, shoddy consumer protection and the tendency of a tech-heavy economy to drive income inequality.
One final worry is that these moves toward greater state discipline are driven not by economic motives but by Mr. Xi’s desire to reinforce his power, ahead of a Communist Party conference in late 2022 where he expects to gain a third term as the country’s leader. In the long run there is a risk that overly centralized power could degrade the government’s ability to manage the economy. But Mr. Xi also recognizes that his power will not be worth much unless the economy keeps growing.
China will never run its economy in a way that pleases free-market purists. But it has come up with a mixed model that works. And despite the stresses of the moment, it will keep on working.
Arthur Kroeber is a partner and the head of research at Gavekal Dragonomics, a China-focused economic research firm.
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Nobody seems to know what's going on with the economy – CNN
(CNN)If you’re confused by the US economy, which simultaneously shows signs of strength and cause for concern, you’re not alone.
- This is a particularly unusual environment. It is making predictions really difficult for economists. The labor shortage, supply chain crisis, energy crunch, inflation and Covid-19 situations all wrapped into one make for a delicate balancing act. We should cut economists a break.
- Right in the long run. Economists actually have been proven correct over the past several months when they initially were thought to be wrong. That’s because the reports keep getting revised higher in subsequent months as Labor Department economists get more data. It’s not only hard for economists at Goldman Sachs and JPMorgan to figure out — it’s hard for the government, too.
- Don’t focus on expectations. The forecasts aren’t the important thing here — it’s the actual data. And one month doesn’t a trend make. We’ve had some shockingly good jobs data in recent months, and November wasn’t all that bad — just not quite as good as we had expected.
Omicron Variant May Be Good For Economy – Forbes
The omicron variant of Covid-19 has sparked great fear. With time, we may find the fear to have been justified, but we may find the opposite: that this is good news for the economy.
It’s still early days for our knowledge of omicron. Waiting to learn more seems to make sense, but consider this: Business decisions are being made every day. Any person who waits for perfect certainty—about the economy, technology or Covid-19—will never make a single decision. In many areas decisions have to be made this week. So it’s worthwhile to consider how omicron may be good for the economy.
Omicron seems to be displacing the delta variant in South Africa. Ted Wenseleers showed that delta’s share of total Covid-19 cases in South Africa has plummeted while omicron has surged. Because the early indications show that omicron was highly transmissible, it could well displace the delta variant around the world.
So far omicron has triggered a surge in infections in South Africa, but not a comparable increase in deaths. There’s good reason for the virus to mutate to be less dangerous. Bugs that kill their hosts don’t replicate as much as bugs that allow their hosts to remain alive. Many viruses in the past have evolved to be milder. We cannot take this idea too far, however.
The omicron virus may have mutated so that it has greater ability to infect those who already had been exposed to earlier variants. That’s no surprise to South African scientists, who have observed a very high past infection rate in their population. The virus could not get ahead by finding people never exposed to any version of Covid-19, so it found a way to infect the previously ill, this theory goes.
BioNTech CEO Ugur Sahin said recently that current vaccines probably help protect against severe illness from the omicron variant, and that new vaccines are under development that would be more targeted against omicron. Given the speed with which our vaccines were developed, we may have new versions being tested in the lab right now. The question will be how long we have to wait for regulatory approval.
From an economic forecasting viewpoint, business leaders should consider the upside potential of omicron. Although it is way too early to be sure, we may find that the disease becomes dominated by a less dangerous mutation. Illness would continue if this happens, but with fewer deaths and hospitalizations. People would come to feel more comfortable dining out, traveling and seeking routine non-Covid healthcare tests and procedures. The rosy view is far from certain, but current evidence is not more pessimistic.
Companies that that are especially sensitive to the Covid pandemic should try to delay big decisions. We’ll have better information in the coming weeks. But decisions that cannot be delayed should probably consider the possibility of a stronger economy rather than greater Covid problems.
Can the global economy battle through another COVID-19 setback? – Aljazeera.com
Video Duration 26 minutes 00 seconds
A new coronavirus variant has forced governments to impose travel bans just as economies were starting to recover.
Last week, after scientists in South Africa identified a new coronavirus variant, borders were suddenly closed off to passenger travel from Southern African countries, oil prices fell more than 10 percent, and stock markets took a hit.
Markets and economies are expected to face weeks of uncertainty as investors closely watch for updates on Omicron. What comes next largely depends on what scientists discover and how quickly they do so.
Also, green hydrogen has been hailed as the energy of the future; can it help decarbonise economies?
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