China’s economy, both at the central and provincial levels, is under considerable stress as two of the world’s biggest investment banks have slashed China’s economic growth forecast, ahead of the 20th Party Congress of the Communist Party of China (CPC).
Japanese financial holding company, Nomura and US-based Investment banking company Goldman Sachs cited weaker demand, energy crunch, and uncertainties stemming from China’s zero-COVID policy as the primary reasons for the cuts, reflecting deepening investor gloom about China’s growth target of 5.5 per cent.
Nomura, which continues to maintain one of the lowest estimates for China’s growth, reduced its projection for Gross Domestic Product growth to 2.8 per cent from 3.3 per cent
Meanwhile, Goldman Sachs on Wall Street lowered its 2022 full-year forecast to 3.0 per cent from 3.3 per cent. This cut in China’s anticipated growth sends a negative outlook even as it grapples with political stability ahead of the Party Congress.
Even official sources in China had indicated last month that it might miss its GDP goal for the year, reported Global Strat View.
Production cuts in some parts of China have become common, as one of the worst heat waves in decades strains an already stressed power supply. Nomura economists assess that “in contrast with some people’s concerns about too much policy stimulus in H2 [second half of the year], the real risk is that Beijing’s policy support may be too little, too late, and too inefficient.” reported Global Strat View.
Official data shows that during the first seven months of the year, China’s fiscal revenue dropped by 9.2 per cent year on year. Tax revenue came in at nearly 10.27 trillion yuan (USD 1.5 trillion) over the same period, down 13.8 per cent from a year earlier.
China’s economic growth in the June quarter was only 0.4 per cent.
The central government collected around 5.74 trillion yuan in fiscal revenue, a decrease of 11.2 per cent, while local governments collected 6.75 trillion yuan, a fall of 7.6 per cent.
Experts assess that reducing expenditures, such as cutting officials’ salaries and benefits and even reducing head counts, is unlikely to alleviate fiscal pressure. Reports indicate that in a few small towns in Yunnan, civil servants have not been paid for more than six months, reported Global Strat View.
China’s zero-COVID policy is not only affecting the national economy but is also putting enormous financial stress on local governments, sometimes forcing authorities to slash public services and delay salary payments to civil servants.
It is one of the last places in the world still enforcing stringent zero-Covid measures. The unending restrictions have upended daily life and dealt a heavy blow to the slowing economy.
China’s jobs market has been one of the main casualties of the zero-COVID policy. In July, youth unemployment in China hit a record high, with one in five young people out of work.
Youth among 16-24 years old are among the ones facing high joblessness. The rate continued to rise in July to a record 19.9 per cent, compared with 8.5 per cent in the United States in July, 13.6 per cent in the European Union in June, and 4.4 per cent in Japan in June.
Youth unemployment reflects the economic reality of China. Still, with importance being given to regime stability in the run-up to the 20th party congress expected in October 2022, it also becomes a political issue.
China is expected to relax the tight COVID restrictions, which are at the root of the June 2022 quarter’s almost zero economic growth. However, with the focus entirely on the party congress, the CPC will likely leave it to Premier Le Keqiang to try to shake off the economic malaise.
Meanwhile, analysts have also observed that Xi Jinping’s third term at the 20th Party Congress to be held on October 16 in Beijing, will not help the Communist Party of China (CCP)’s future disintegration, and the CCP will continue to run wild in the direction of disintegration because Xi basically will not make significant changes to the party even after securing the term.