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China’s GDP: Will weakening data hurt Xi’s ambitious policy agenda?

The announcement of China’s forecast for economic growth in the third quarter on Monday marks a decisive milestone for the world’s second-largest economy.

The National Bureau of Statistics’ GDP figures and other indicators capture the first effects of the two economic shocks. The debt crisis at Evergrande, one of China’s largest real estate developers, and a widespread and serious energy shortage.

President Xi Jinping’s administration, despite accounting for 30% of total economic output, has done little to ease pressure on the country’s real estate sector.

Instead, Beijing said,Window of opportunityIs to discipline over-leveraged real estate developers, which are considered a serious threat to China’s financial stability.

“Focusing on de-leveraging, pressure on real estate speculation and energy shortages could significantly slow China’s already weak growth momentum,” said the IMF’s China division, which is currently enrolled at Cornell University. Former Head of Staff Eswar Prasad said.

He said Deputy Prime Minister and President’s most credible economic advisers, Xi and Liu He, were “ready to accept a significant short-term slowdown in growth in return for increased long-term fiscal stability. “

Here are five things to keep in mind for next week’s release:

Has the Chinese economy stopped quarterly?

The Chinese economy expanded 12.7 percent in the first half of this year compared to the same period last year. Covid-19 pandemic has occurred In Central Hubei, it has severely disrupted economic activity across the country.

But this big headline surge masked a quarterly growth of only 0.4% in the first three months of the year and 1.3% in the second quarter.

Goldman Sachs analysts predict that third-quarter economic output did not grow at all quarterly. The September 28 report also stated that China’s fourth-quarter outlook was due to “Government’s approach to managing evergrande stress, strict enforcement of environmental goals, and degree of policy easing.” There is considerable uncertainty. “

What was Evergrande’s impact on fixed asset investment in September?

Evergrande has monthly sales on September 13th Almost half We anticipate another dark result in August compared to June, usually in September, which is the bumper month for the sector.

In a broader sense, real estate sales in 30 major cities in the country fell by almost one-third year-on-year in September. This suggests that September was a very weak month for fixed asset investments to track spending on real estate and infrastructure. Fixed asset investment growth had already slowed from 12.6% year-on-year in the first half to 8.9% from January to August.

Infrastructure investment growth has been consistently slower in the second phase of Xi, which began in 2018, than in the first phase (2013-17). This reflects government concerns about debt levels in municipal financial instruments that finance most infrastructure investments.

How did the power shortage affect industrial production?

Industrial production growth has already slowed, with August year-on-year, before the scale of China’s electricity crisis, such as Evergrande, shocked everyone from factory owners to economists in September. It was up 5.3%.

Main reasons for power shortage Depends on the region.. This included coal shortages and rising coal prices, forcing plants to limit power generation, as well as strict environmental and energy efficiency goals.

Macquarie’s chief China economist, Larry Fu, said the country’s Ministry of Economic Planning has taken steps to address the coal shortage, but “has no intention of changing its energy consumption targets this year.” As a result, he predicted that widespread electricity distribution could continue well into the fourth quarter.

Will retail sales recover?

Retail sales were up just 2.5% year-on-year in August, well below market expectations of at least 7%, compared to 8.5% in July.

If this continues, it will be even more difficult for Chinese policymakers to resume an economy that is suffering from slowing investment and growing industrial production. In a recent investment note, Enodo Economics’ Diana Choileba said, “More pain awaits as Xi becomes more serious about limiting home price increases to address key causes of inequality. I predict.

Will these challenges force Xi and his economic team to ease policy in the fourth quarter?

“The government’s move to simultaneously strengthen state control of the economy and the lack of clarity about the government’s intentions for private sector could hinder long-term growth,” Prasad warned.

But from Xi’s crackdown on China’s private sector Technology group Earlier this year, he showed no signs of easing China’s campaign for a radical overhaul of his willingness to put Evergrande and other developers on the brink of bankruptcy. Economic model.. The data release on Monday could be an early test of this ambitious policy agenda.

China’s GDP: Will weakening data hurt Xi’s ambitious policy agenda?

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