China economy slows as power cuts, property woes and Covid take toll

China’s economy grew slower than expected in the third quarter, official data showed on Monday, as power outages and supply bottlenecks hurt factories while sporadic Covid-19 outbreaks weighed on consumption.Gross domestic product (GDP) expanded 4.9% in the July-September quarter from a year earlier, the national statistics bureau said, slowing from 7.9% in April-June and compared with expectations for a rise of 5.2% expected by economists.The result was the weakest reading since last year’s third quarter, when GDP also grew 4.9%, and marked a further deceleration from a record 18.3% expansion in the first quarter.The world’s second-largest economy has staged an impressive rebound from the pandemic but the recovery is losing steam. Problems including faltering factory activity, power cuts in the country’s crucial northern industrial heartland, weak consumer demand and a slowing property sector have fanned speculation that policymakers may announce more stimulus measures in coming months.Chief among the concerns about the giant property sector is the future of China Evergrande Group, the country’s number two developer which is struggling under a $300bn mountain of debt.It has already missed three repayments on bonds that it owes overseas investors in US dollars, and trade in its shares in Hong Kong has been suspended since 4 October.There are concerns that Evergrande could go into official default this week when the 30-day grace period is up on the first tranche of repayments it missed in September worth $83.5m.As the company wrestles with its debt, worries about a possible spillover of credit risk from China’s property sector into the broader economy have intensified.But the head of China’s central bank, Yi Gang, said on Sunday the economy was “doing well” although it faced challenges such as default risks for certain firms due to “mismanagement”.Yi said default risks for some firms and operational difficulties among small and mid-sized banks were among the challenges for China’s economy, and that authorities were keeping a close eye “so they do not become systematic risks”.Despite setbacks from coronavirus infections, China’s economy was expected to grow 8% this year, Yi said at an online meeting of the Group of 30 international banking seminar, which coincides with the annual meetings of the International Monetary Fund and World Bank.“Economic growth has been slowed down a little bit, but the trajectory of economic recovery remains unchanged,” he said.Authorities will first try to prevent problems at Evergrande spreading to other real estate companies to avoid a broader systematic risk, he added.The rumbling crisis at Evergrande and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high last week and triggered a fresh round of credit rating downgrades.“The interest of creditors and shareholders will be fully respected strictly in accordance to law,” Yi said. “The law has clearly indicated the seniority of liabilities.”Authorities will give the highest priority to the protection of consumers and homebuyers, while respecting the rights of creditors and shareholders, he said.China’s central bank was taking various steps to fend off financial risks, such as replenishing capital for small and midsize banks, Yi said.

China economy slows as power cuts, property woes and Covid take toll

China’s economy grew slower than expected in the third quarter, official data showed on Monday, as power outages and supply bottlenecks hurt factories while sporadic Covid-19 outbreaks weighed on consumption.

Gross domestic product (GDP) expanded 4.9% in the July-September quarter from a year earlier, the national statistics bureau said, slowing from 7.9% in April-June and compared with expectations for a rise of 5.2% expected by economists.

The result was the weakest reading since last year’s third quarter, when GDP also grew 4.9%, and marked a further deceleration from a record 18.3% expansion in the first quarter.

The world’s second-largest economy has staged an impressive rebound from the pandemic but the recovery is losing steam. Problems including faltering factory activity, power cuts in the country’s crucial northern industrial heartland, weak consumer demand and a slowing property sector have fanned speculation that policymakers may announce more stimulus measures in coming months.

Chief among the concerns about the giant property sector is the future of China Evergrande Group, the country’s number two developer which is struggling under a $300bn mountain of debt.

It has already missed three repayments on bonds that it owes overseas investors in US dollars, and trade in its shares in Hong Kong has been suspended since 4 October.

There are concerns that Evergrande could go into official default this week when the 30-day grace period is up on the first tranche of repayments it missed in September worth $83.5m.

As the company wrestles with its debt, worries about a possible spillover of credit risk from China’s property sector into the broader economy have intensified.

But the head of China’s central bank, Yi Gang, said on Sunday the economy was “doing well” although it faced challenges such as default risks for certain firms due to “mismanagement”.

Yi said default risks for some firms and operational difficulties among small and mid-sized banks were among the challenges for China’s economy, and that authorities were keeping a close eye “so they do not become systematic risks”.

Despite setbacks from coronavirus infections, China’s economy was expected to grow 8% this year, Yi said at an online meeting of the Group of 30 international banking seminar, which coincides with the annual meetings of the International Monetary Fund and World Bank.

“Economic growth has been slowed down a little bit, but the trajectory of economic recovery remains unchanged,” he said.

Authorities will first try to prevent problems at Evergrande spreading to other real estate companies to avoid a broader systematic risk, he added.

The rumbling crisis at Evergrande and other major homebuilders drove debt market risk premiums on weaker Chinese firms to a record high last week and triggered a fresh round of credit rating downgrades.

“The interest of creditors and shareholders will be fully respected strictly in accordance to law,” Yi said. “The law has clearly indicated the seniority of liabilities.”
Authorities will give the highest priority to the protection of consumers and homebuyers, while respecting the rights of creditors and shareholders, he said.

China’s central bank was taking various steps to fend off financial risks, such as replenishing capital for small and midsize banks, Yi said.