China’s economy risks slowing faster than global investors realize as President Xi Jinping’s push to cut its reliance on real estate and regulate sectors from education to technology combine with a power shortage and the pandemic.
Bank of America Corp. and Citigroup Inc. are among those sounding the warning that expansion will fall short this year of the 8.2% anticipated by the consensus of economists. The slump could last into next year, forcing growth below 5%, they warn. Outside 2020’s 2.3%, that would be the weakest in three decades.
Surprisingly Bad
Chinese economic data have been worse than expectations since May
Source: Citibank
Strategists at Bank of America muse that Xi may even be embracing a once-in-two decades restructuring of the economy akin to Deng Xiaoping’s modernizations of the late-1970s and Zhu Rongji’s revamping of state-enterprises and finance in the 1990s.
“If so, the data flow from China could confound even the pessimists, and we are on guard for that scenario unfolding,” the strategists, led by Ajay Kapur, told clients in a report last week, in which they predicted growth of 7.7% this year and 4% in 2022.
Beijing is determined to shift its economic model from its boom years, in which the country loaded up on debt and propelled itself to become the second-largest economy.
Xi is now overseeing a plan to stabilize debt growth — in order to ease financial risks — curb inequality and channel financial resources into hi-tech manufacturing to counter the threat of technology restrictions from the U.S.
What Bloomberg’s Economists Say…
The common prosperity initiative “has shaken up some sectors of China’s economy. Viewed through the prism of financial markets, it’s about tightening the screws in a narrow set of industries. This misses the big picture. The agenda marks a fundamental shift in the policy mindset — from an overriding emphasis on growth to greater weight on social equity.”
–Chang Shu
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