gdp

China’s Q3 Economic Growth Slows To 4.9% – Free PDF Download

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What has happened?

  • China’s third-quarter GDP growth slowed to 4.9% as industrial output rose way below expectations in September, according to data released by the country’s National Bureau of Statistics on Monday.
  • “Since entering the third quarter, domestic and overseas risks and challenges have increased,” Fu Linghui, spokesperson for the Bureau of Statistics, said in Mandarin at a press conference, according to a CNBC translation.

Main reason

  • The main reason why growth was below expectation is the tepid rise in industrial production at 3.1% in September, way below the expected 4-4.5%.

2 factors

  • One, it needs to be kept in mind that China was the first off the blocks when it comes to reviving growth after the pandemic.
  • So, inevitably, even as the rest of the world struggles to get back to pre-pandemic levels, the Chinese recovery had already gathered steam and pre-pandemic milestones were crossed quarters ago.
  • The base is consequently a factor in China’s case.
  • Second, and more worryingly, there are a combination of systemic issues evident in the latest data print that signal potential headwinds, both for the Chinese and the global economies.
  • This includes a massive fuel crunch that is crimping the country’s growth engine, worries of a systemic crisis in its real estate business precipitated by the Evergrande fiasco,
  • And a souring of business sentiment amid the federal government’s crackdown on multiple Chinese sectors and marquee companies that have been mascots of growth over the years.

Is this worrying?

  • Monday’s data release does offer indications that businesses were less keen to invest in new projects.
  • Also, the power shortage had a “certain impact” on normal production, the National Bureau of Statistics spokesperson said, according to the CNBC translation, while underlining that the economic impact is “controllable”.
  • The fuel/power crisis in China continues to fester.
  • Factories and units across the country’s industrial heartland in its south east have had to curtail output in late September as a surge in coal prices and a resultant electricity shortage prompted provincial governments to cut power supplies.
  • The turmoil in the real estate sector, which accounts for about a quarter of China’s GDP, is now beginning to show up in the data as well, with fixed asset investment for the first three quarters of the year coming in lower than expected.

  • The drop in fixed asset investment is being primarily attributed to a perceptible slowdown in real estate investments.
  • In August, real estate major Evergrande warned of a default and subsequently missed payments to investors in its offshore US dollar-denominated debt.
  • The Peoples Bank of China said Friday that Evergrande is an exception and that other developers were unaffected.
  • But there are lingering concerns of a cascading impact across sectors.

Impact on India?

  • There are concerns that a slowing Chinese economy could impact the incipient global recovery.
  • India too could see an impact, given that the country’s bilateral trade with China has grown nearly 50% in the first nine months of 2021, according to Chinese government data.
  • According to India’s Commerce Ministry data, China was India’s top trading partner in the April-July period, followed by the US, the UAE, Saudi Arabia and Singapore.
  • India’s imports from China rose to $68.5 billion in the first nine month of 2021, up 52% from the corresponding period in 2020, pushing India’s trade deficit with China to $46.55 billion in the first nine months of 2021, up from $29.9 billion in the year-ago period.
  • India’s total trade with China touched $90.38 billion during the January-September period, and is likely to cross $100 billion by the end of the year.
  • A slowing Chinese economy portends worries on the buoyant trade front, apart from the overall loss of momentum to the global post-pandemic economic recovery.

Q) What does an increase in aggregate demand result in?

  1. The cost to increase in the long term
  2. GDP to increase in the long term
  3. The cost to increase in the short term
  4. GDP to increase in the short term

 

 

 

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