For the first time since 1990, China’s economic production this year will be less than the rest of Asia’s, the World Bank has predicted.

China will grow 2.8 percent this year after turning in 8.1-percent growth last year, the bank said.

At the same time, the rest of Asia will expand by 5.3 percent this year, compared to 2.6 last year. Asian economies are benefiting from high commodity prices and a resurgence of post-COVID domestic consumer and business spending.

In April, the bank had foreseen 4- to 5-percent expansion in China this year.

“China, which was leading the recovery from [COVID] and had largely shrugged off the Delta variant difficulties, is now paying the economic cost of containing the disease in its most infectious manifestation,” Aaditya Mattoo, the World Bank’s chief economist for Asia, said to the Financial Times.

China’s government had set a growth target of 5.5 percent this year, the lowest in 30 years.

However, president Xi Jinping then instituted a zero-tolerance anti-COVID policy that has resulted in massive, rolling lockdowns around the country since March. Economic output has plummeted as a result.

He mandated the policy amid the collapse of China’s property development and real estate industries, which have accounted for as much as 30 percent of GDP.

Home sales by the country’s 100 largest developers plunged 25.4 percent in September, year over year, the 15th consecutive month to show a year-on-year slide, the China Real Estate Information Corp. reported.

Also, regulatory crackdowns on the tech and financial industries, as well as droughts, floods, and heat waves have sapped the country’s economic vitality.

To prevent the property industry’s breakdown from infecting the broader economy, the government needs to give failing developers financial aid and offer financial guarantees that projects will be completed, the World Bank urged.

A budding movement across China is encouraging home buyers to suspend their mortgage payments until their homes are completed, as we reported in “Chinese Home Buyers Refuse to Make Mortgage Payments on Unfinished Houses” (19 Jul 2022).

Over the longer term, China needs to make economic reforms, including giving local governments the power to tax property to make government revenues less dependent on land sales, the bank said.

China has “immense ammunition to provide a powerful stimulus,” Mattoo said, but Beijing has determined that stimulating consumption and propping up the housing market would be “emasculated” by continuing anti-COVID lockdowns, the FT reported.

TREND FORECAST: President Xi Jinping zero-COVID policy has dramatically delayed China’s emergence as the world’s leading economy by at least five years.


China’s service sector contracted in September, paying the price of Beijing’s drastic, ongoing anti-COVID policy of rolling lockdowns, The Wall Street Journal reported.

Restrictions were tightened even more in advance of Golden Week, which begins 1 October to commemorate the Communist revolution, and the Communist Party conclave beginning 16 October.

As of 30 September, lockdowns covered areas responsible for 25 percent of China’s economic output, according to the WSJ.

The service sector’s purchasing managers index (PMI) fell from 51.9 in August to 48.9 in September. Ratings below 50 indicate declining economic activity.

The slump highlights the government’s failure to grow a robust consumer economy under its “dual circulation” economic strategy, which we have detailed extensively in articles such as “China Announces “Dual Circulation” Economic Policy” (9 Sep 2020) and “China’s Economy is Shrinking” (10 May 2022), among others.

In contrast, the manufacturing sector edged back into an expansion last month after shrinking for two, with the sector’s PMI rising from 49.4 in August to 50.1 in September despite a deepening weakness in orders for export.

The PMI’s export subindex slid to 47, the lowest in four months, while Chinese ports’ container and cargo traffic shrank 15 percent during the first 10 days of September, year on year, the WSJ found.

Draconian anti-virus measures are likely to remain in effect at least through this calendar year, dimming hopes of a service-sector rebound, the WSJ said.

Goldman Sachs and several other investment banks expect the strict policy to remain in place until mid-2023, the WSJ noted.

China had set a growth target this year of 5.5 percent, its lowest in 30 years.

Now the World Bank and major investment banks have set that target at no more than 3 percent, rising to as much as 4.5 percent in 2023.

Yuan Yanked Down

On 28 September, the value of China’s yuan fell to 7.2 to the dollar, its lowest value against the buck since February 2008.

This newest slump has brought the yuan’s loss this year to 21 percent against the U.S. currency and puts the yuan on track for its worst year since 1994, Business Insider reported.

China’s economic output will grow by only 3.4 percent this year, according to economists Bloomberg surveyed, which would mark its slowest annual pace in at least 40 years.

The People’s Bank of China is tightening some aspects of monetary policy to prop up the yuan.

“The foreign exchange market is of great importance and maintaining its stability is the top priority,” the bank said in a public statement.

The bank also warned speculators “you will lose if you keep betting” against the yuan.

The dollar has grown increasingly strong throughout most of this year, prompting China and other countries to attempt to shore up their own currencies’ value to ease the cost of imports, especially fossil fuels that often must be paid for in dollars.

However, a global tightening of monetary policies sharpens the risk of a worldwide recession, according to Francesco Bianchi, an economics professor at Johns Hopkins University.

A global recession “remains a real possibility, given several central banks have moved in the direction of tightening monetary policy,” he told BI.

“Given that inflation does not seem to fade away, I do not expect to see monetary policy change direction soon,” he added.

The yuan has slipped further, closing at 7.12 to the dollar on Monday, 3 October.

TREND FORECAST:  Expecting major losses on loans, Chinese banks have taken drastic steps to increase their loan loss reserves, tapping China’s bond markets for some 30 percent more funds than they did a year ago.  

Then there is the Taiwan wild card. The closer Beijing gets to taking over the island, the more sanctions will be placed on China which will result in a deep slide of export products. And as with Russia, more companies will abandon China for other cheap labor nations.  

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