[Growth
of 4.9 percent shows the country’s huge industrial sector has run into trouble.
But exports and services are looking strong.]
It
has all taken a toll on China’s economy, an essential engine for global growth.
The
National Bureau of Statistics announced on Monday that China’s economy
increased by 4.9 percent in the third quarter, compared to the same period last
year; the period was markedly slower than the 7.9 percent increase the country
notched in the previous quarter. Industrial output, the mainstay of China’s
growth, faltered badly, especially in September, posting its worst performance
since the early days of the pandemic.
Two
bright spots prevented the economy from stalling. Exports remained strong. And
families, particularly prosperous ones, resumed spending money on restaurant
meals and other services in September, as China succeeded once again in
quelling small outbreaks of the coronavirus. Retail sales were up 4.4 percent
in September from a year ago.
Chinese
officials are showing signs of concern, although they have refrained so far
from unleashing a big economic stimulus.
“The
current international environment uncertainties are mounting, and the domestic
economic recovery is still unstable and uneven,” said Fu Linghui, the spokesman
for the National Bureau of Statistics.
The
government’s own efforts, though, are part of the current economic challenges.
In
recent months, the government has unleashed a raft of measures to address
income inequality and tame businesses, in part with the goal of protecting the
health of the economy. But those efforts, including penalizing tech companies
and discouraging real estate speculation, have also weighed on growth in the
current quarter.
The
government had also imposed limits on energy use as a part of a broader
response to climate change concerns. Now, the power shortages are hurting
industry, and the country is rushing to burn more coal.
“The
economy is sluggish,” said Yang Qingjun, the owner of a corner grocery store in
an aging industrial neighborhood of shoe factories in Dongguan, near Hong Kong.
Power cuts have prompted nearby factories to reduce operations and eliminate
overtime pay. Local workers are living more frugally.
“Money
is hard to earn,” Mr. Yang said.
Trying
to Solve the Real Estate Question
Urbanization
was once a great engine of growth for China. The country built spacious
apartments in modern high-rises for hundreds of millions of people, with China
producing as much steel and cement as the rest of the world output combined, if
not more.
Now,
real estate — in particular, the debt that developers and home buyers amassed —
is a major threat to growth. The country’s biggest developer, China Evergrande
Group, faces a serious cash shortage that is already rippling through the
economy.
Construction
has ground to a halt at some of the company’s 800 projects as suppliers wait to
be paid. Several smaller developers have had to scramble to meet bond payments.
This
could create a vicious cycle for the housing market. The worry is that
developers may dump large numbers of unsold apartments on the market, keeping
home buyers away as they watch to see how far prices may fall.
“Some
developers have encountered certain difficulties, which may further affect the
mood and confidence of buyers, causing everyone to postpone buying a house,”
said Ning Zhang, a senior economist at UBS.
The
fate of Evergrande has broader import for the long-term health of the economy.
Officials
want to send a message that bond buyers and other investors should be more wary
about lending money to debt-laden companies like Evergrande and that they
should not assume that the government will always be there to bail them out.
But the authorities also need to make sure that suppliers, builders, home
buyers and other groups are not badly burned financially.
These
groups “will get made more whole than the bondholders, that’s for sure,”
predicted David Yu, a finance professor at the Shanghai campus of New York
University.
Addressing
Difficulties in Heavy Industry
As
electricity shortages have spread across eastern China in recent weeks,
regulators have cut power to energy-intensive operations like chemical
factories and steel mills to avoid leaving households in the dark. It has been
a double whammy for industrial production, which has also been whacked by
weakness in construction.
Industrial
production in September was up only 3.1 percent from a year earlier, the lowest
since March of last year, when the city of Wuhan was still under lockdown
because of the pandemic.
“The
power cuts are more concerning to some extent than the Evergrande crisis,” said
Sara Hsu, a visiting fellow at Fudan University in Shanghai.
The
Energy Bureau in Zhejiang Province, a heavily industrialized region of coastal
China, reduced power this autumn for eight energy-intensive
industries that process raw materials into industrial materials like steel,
cement and chemicals. Together, they consume nearly half the province’s
electricity but account for only an eighth of its economic output.
Turning
down the power to these industries risks creating shortages in industrial
materials, which could ripple through supply chains.
Assembly
plants in industries that use less electricity, like car manufacturing, have
not faced the same demands for power cuts. But they face other challenges.
Ongoing
coronavirus outbreaks in Southeast Asia have interrupted supplies of some auto
parts. There is also a global shortfall of semiconductors, a critical component
in cars.
Volkswagen,
the market leader in China, said on Friday that its production had been falling
as the company faced an ever-worsening chip shortage and other supply chain
issues. The company doesn’t have enough cars to fill customers’ and
dealerships’ orders, creating a backlog.
“Our
priority is to work off our backlog,” said Stephan Wöllenstein, the chief
executive of Volkswagen’s China division.
Finding
Strength in Exports
For
months, economists have made the same prediction: the fast growth of China’s
exports cannot last.
The
economists were wrong.
China’s
exports kept surging through the third quarter and finished strong, up 28.1
percent in September compared with the same month last year. China posted its
third-highest monthly trade surplus ever last month.
China
has essentially maintained its strength in exports ever since its economy
emerged from the pandemic in the spring of last year. As much of the world
hunkered down at home, families splurged on consumer electronics, furniture,
clothing and other goods that China manufactures in abundance.
The
export boom, though, is creating another source of tension between the United
States and China.
Katherine
Tai, the United States trade representative, suggested in a speech two weeks
ago that China’s export prowess was partly the result of subsidies and other
unfair practices. “For too long, China’s lack of adherence to global trading
norms has undercut the prosperity of Americans and others around the world,”
she said.
But
Chinese officials and experts contend that the country’s success is the result
of a strong work ethic and consistent, large investments in manufacturing. They
are quick to point out that by bringing the pandemic firmly under control
within several weeks early last year, China was able to reopen its factories
and offices quickly.
“We
have very strong supply, but weak demand,” said Tu Xinquan, the executive dean
of the China Institute for World Trade Organization Studies at the University
of International Business and Technology in Beijing. “So companies have to
export.”
Li
You contributed research.
