For the first time since 1990, China's economic growth is expected to lag behind that of the rest of Asia. The World Bank predicts that the Chinese economy would expand by 2% this year, which is less than half of the prior prediction.

The World Bank reduced its prediction for the entire Asia-Pacific region to 3.2%. It's interesting how we have grown accustomed to China taking the lead and to the country's robust growth rates. I believe that the Chinese economy is currently suffering several difficulties.

China generates 86% of the region's economic output, which consists of 23 nations. Any way you look at it, China's continued growth is essential to our world. And then there is the issue that is currently affecting the property industry, which makes up around 30% of all economic activity. As a result, China is currently confronting many challenges.

A forecast cut is never a good idea, but this timing is particularly unlucky. Thus, the forecast for a region that has long been regarded as the engine of world growth has been drastically reduced.

In what ways does this affect the world economy? Vietnam was the nation in the region with the quickest growth rate in the 1990s when we were discussing the tiger economies. I predict that growth from other economies will increase. As we often say, China continues to be a regional powerhouse, but I believe that the rest of the globe still depends on China. Its production is a crucial component of the supply chain.

And ultimately, for the world economy to recover, China must do so as well. The prospects, in my opinion, entirely depend on how Zero Covid behaves. 

The property sector is in serious trouble

For many would-be homeowners in China, the situation is bad. They spent their savings on their dream home, but now they have to consider the prospect that it won't ever be constructed. The majority of residences are now sold in China by paying a portion of the price of a new home. The plan is for builders to use this cash combined with loans from other financial institutions to construct the home. But instead of finishing their current projects, the majority of builders have continued to invest in new ones. And in the last two years, builders have run out of money and are burdened with enormous debt as simple credit access has dried up due to government rules. But homeowners are ultimately responsible for paying the cost. Many people are forced to live in incomplete properties they purchased because their savings have run out.

Desolate cities are not an uncommon sight in China

Stalled construction projects made up roughly 4% of the nation's housing market in the first half of 2022. The Chinese government proposed measures to support faltering real estate companies following recent large-scale demonstrations. We are discussing blocked projects, which make up 30% of China's overall GDP. These are significant figures, and 90% of all housing in China is purchased off the drawing board before it is even constructed. Therefore, you're talking about a huge issue, and it's hard to conceive that all of these incomplete structures, including unfinished homes, will ever be finished.

But what about the actual construction firms? Do they even have the funds to attempt to finish a project?

The quick response is no. And that's where a large portion of the issue lies. They pre-sold all of these apartments while pledging this much cash. They have promised to spend this much money on the construction of these apartments, but they are currently unable to follow through. As a result, we can see that the government has pledged to lend $30 billion to help fund the completion of these projects. But it's only a drop in the ocean, truly. Suppliers have not been paid. They haven't compensated everyone along the supply chain that goes into making a finished unit. There is money missing. Therefore, it is a complex issue that is affecting the entire real estate industry. Additionally, because the economy is weaker, they lack access to new funds. Due to the zero COVID policy, China's economy is currently growing more slowly than the rest of Asia. We now have all these new things at play for the first time in the past 30 years that weren't there when all of these plans were established.

So you have a situation where companies seem to be too indebted. There are almost 2 million incomplete residences in China, and they lack the money to finish their projects. Does the Communist Party consider this to be a possible issue?

On one hand, it acknowledges that actions taken by individuals, such as refusing to make mortgage payments, may have a destabilising effect. However, I think there is a perception that China has developed a sort of addiction to growth. It kind of thinks that because it has been expanding so rapidly for so long that there will be enough dynamism in the economy to keep things rolling. And that this issue will eventually sort of solve itself. that the task might not be completed this year. Maybe next year, though. There are examples of when this has happened before. When the housing bubble first started ten years ago, there were entire cities that were abandoned next to Newport facilities or anything; I went there and saw everything. There was even money in the ATMs, but no one was to be found anywhere in the city. Those cities did get crowded, but that was another time. At that time, the economy was averaging double-digit annual growth. There will therefore be an issue for them.

The Zero Covid Policy in China is a major issue

The decline in the real estate market brought on by Beijing's Zero Covid policy is mostly to blame for the slowdown. Comparing this to other nations that have quite severe COVID policies but appear to have handled it better without these shutdowns that China has had, which have wreaked havoc on the economy, is intriguing.

China's zero covid policy has shut down manufacturing hubs such as Shenzhen

Both Covid and the property courts continue to hold the economy hostage. People seldom ever purchase real estate. And as a result, in my opinion, any forecast predicated on the whims of covid control is essentially meaningless. Therefore, even after the significant meeting in October, I believe the best-case scenario should be that Covid control will persist for a while. And more crucially, I believe that would introduce uncertainty into the system and apply downward pressure. People find it exceedingly challenging to anchor their future expectations as a result.

Why does China continue to adhere to the zero Covid policy?

Policy-wise, it's difficult to say. Most likely a result of the fact that just 1% of Chinese people have Covid. People therefore may not be as immune as they ought to be at this point. It is so difficult to sort of being certain what type of effect the coronavirus had on the Chinese people, even though it has changed to a weaker version. The zero covid policy has also increased concerns about a possible Chinese recession. Chinese GDP growth is slowing down. It's pretty near to 0 in the first and second quarters, particularly the latter. Some industries are therefore obviously in a recession as a result of the lockout, weather issues, and power scarcity issues.

For instance, investment in the real estate sector is down more than 7% annually and is still slowing down. The retail industry is also experiencing a downturn. People are cutting back on their expenditures and working hard to save money. One of the greatest growth rates in recent years has been seen in bank deposits. The Chinese economy is plainly in a recession in some areas, but not in others. For instance, Chinese exports have been really strong, which, in my opinion, surprised the market as a whole. The Chinese manufacturing industry appears to be performing exceptionally well to produce goods for export.

As a result, the yen is now less strong against the dollar. However, as economic development is essentially declining, no one should be surprised by the yen's decline. Chinese foreign exchange reserves are not increasing. As a result, the Chinese yen is under strain. Additionally, the Chinese yen is under pressure as a result of the differences in monetary policy between China and the US. As a result, while the Fed is raising interest rates relatively quickly, the PPAC is more likely to pursue an expansionary monetary policy.

The majority of people feel uncomfortable with a lot of things, but for some reason they are unwilling, for instance, to loosen the covid control because it is unknown how it would affect the population. Therefore, foreign demand will continue to fluctuate if the Fed raises interest rates too quickly. The Chinese exports, which have been supporting the Chinese economy thus far this year, will come under much more pressure as a result.

The real estate market is currently experiencing something akin to a slow train crash. Going into August, both real estate investment and sales are declining. High-frequency data reveals a slowdown in real estate sales, particularly among the top 30 Chinese developers, in numerous Chinese cities. This has a significant impact on Chinese consumption as well as the property sector's upstream and downstream operations.

China hasn't said how or when it could start to end the zero covid policy. China faces a dilemma because there is, generally speaking, a lack of herd immunity. Therefore, allowing covid to enter the country and opening the borders could have serious negative effects on public health. Furthermore, it is unclear whether China is prepared to handle this or how it intends to do it. However, there is mounting economic pressure on China to scale back or loosen up on zero Covid. And it's a policy that, according to detractors, is simply not long-term viable.

The 20th CCP Congress is unlikely to change things

Since 1921, thousands of members of the Communist Party of China have gathered every five years for a Congress. Untrained eyes may find a sea of officials in dark suits boring or repetitive. But it can reveal a lot about what the party has in store for China this year. The focus of the 20th episode is Xi Jinping, who many belief will defy expectations and win a historic third term as Supreme Leader.

The communist party of China is set to hold the 5 yearly Congress on October 16th

His position as China's most powerful leader since Mao Zedong will be effectively cemented by this. Xi will introduce his new leadership team and a significant restructuring of China's elite from below him. The party Congress is attracting a lot of interest worldwide. Only once every five years does it occur. The process is largely real but obscure.

General Secretary of the Communist Party, head of the Central Military Commission, and the president are Xi's three major positions. He is anticipated to keep each one. During his ten years in office, he is thought to have essentially silenced any significant challenge to his rule.

Some commentators have predicted that he will succeed Mao as chairman, a position that was abolished in 1982. However, there is no indication that he will do so. China's new leadership will determine the country's policy for the ensuing five years and beyond. For instance, the question of whether China would start to relax its strict zero covid policy.

China's economy is collapsing and Xi is being stubborn

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