Chinese Economy Nosedive Continues, Sinking Oil Prices

[Ubiquitous]

A poll conducted by the Caixin news service on Monday found China’s
economy foundering as the second half of 2022 began, with slower
manufacturing activity, higher unemployment, and a depressed real
estate market.

China’s weakening economy reduced its demand for oil, combining with
downbeat manufacturing data from other countries to bring oil prices
down by four percent.

Caixin’s poll found that Chinese manufacturing activity slowed
considerably in July — or possibly even contracted — after the latest
round of coronavirus lockdowns ended in June and produced an exuberant
surge in production.

China Beige Book International (CBBI), a consulting firm for investors,
said July factory output slowed to levels not seen since mid-2020 and
retail sector unemployment hit a two-year high – signs that Chinese
urbanites and corporate managers “simply do not believe that their
Covid Zero nightmare is over.”

“Retailing is in the most trouble. Firm death is almost certainly
occurring in the sector now,” CBBI chief economist Derek Scissors said,
highlighting fears that coronavirus lockdowns could strike again at any
moment, without warning.

Other economic surveys found the Chinese real estate market slipping by
33 percent after an 89-percent surge from the end of lockdowns in June,
Gross Domestic Product (GDP) growing by only 0.4 percent in the second
quarter, and consumers nervous despite a modest 3.1 percent post-
lockdown gain in retail spending.

Consumer spending may be stagnant because weak factory output and
highly-publicized layoffs leave many Chinese workers worried about
their jobs. Some are taking advantage of a real estate bubble to sell
their homes for cash, making up for incomes lost due to downsizing and
layoffs.

Analysts compared the current situation unfavorably to China’s recovery
from a market collapse and banking scandals in 2015 because consumer
spending kept growing in 2015, while it has become stagnant today.
Also, today’s real estate industry has wide-ranging and much-discussed
problems that could prevent it from rescuing the remainder of the
consumer economy.

When China’s troubled real estate giant, the China Evergrande Group,
did not deliver its promised $300 billion restructuring plan over the
weekend, analysts told CNBC the loss of confidence in real estate may
create a “negative feedback loop” that drags down the rest of the
Chinese economy.

The Chinese real estate industry is already in the grip of an unusual
“mortgage revolt,” with homeowners refusing to make their payments
because they think developers will not finish construction and
renovation projects.

“If this problem is not handled properly, it will have a profound
impact on the economy, including the government balance sheet, the
banks’ balance sheet as well, and households,” Standard Chartered
economist Shuang Ding told CNBC.

Ding noted the real estate crisis could do significant damage to
Chinese government finances, as provincial governments obtain much of
their revenue by taxing land sales. The looming collapse of titanic
Evergrande is choking the market by frightening investors, while
individual home buyers are expressing their frustrations through the
mortgage revolt.

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