China may not be struggling with huge energy prices or high inflation like Europe and America, but it also has its own economic problems. These difficulties are not only affecting China in the current globalisation, but also us. What is the Chinese Government currently struggling with and how real is the crisis or even the collapse of the local economy?

Quarterly figures

In the second quarter of this year, China recorded GDP growth of only 0.4% over last year. Industrial production, which grew by 3.9% instead of the 4.1% projected, has the same problem.

Retail sales rose 3.1%, beating expectations of zero growth. Fixed asset investment also rose. Unemployment did fall to a pre-pandemic 5.8%, but rising unemployment among 16-24 year olds is a particular problem. It is currently at 19.9%.

These would be the most important figures for the last quarter, which in themselves look pretty good. Now let's look at the context.

What is happening in China

One of the main causes of China's problems is Covid-19. Or rather, the policy towards this disease. You could say that we have actually forgotten about it and we don't see it. In China, it is different. The government has a so-called 'zero covid policy'. This is to prevent the virus from spreading in the community altogether, which involves drastic measures such as isolation of towns, quarantines, mass testing. This, of course, puts a strain on the economy, as employees cannot go to work, factories close down. This reduces exports, which are extremely important to China. We can expect more infections in the autumn, hence more measures.

Drought is a major problem here, as it is all over the world. In China we find a large number of hydroelectric power plants, which in 2018 accounted for 18% of the total electricity generated. Water is scarce due to the drought, so power plants are reducing production. This also leads to constraints in the production halls, which need large amounts of energy.

Regulatory mechanisms, which are a thorn in the side of investors in Chinese companies, are also not helping the economy. Take the example of Tencent. It is in the gaming business, among others. The government is extending the approval time for their new games or limiting children's gaming time to about 3 hours a week. This, of course, does not help their business.

Another problem for the economy is the housing crisis that China has been struggling with since 2020. This is leading to thousands of people refusing to pay their mortgages anymore. This is their outcry over unfinished residential projects that have not been and are not being completed within the stipulated timelines. Property sales have been falling for 11 months in a row on these reports. The most famous symbol of this crisis is the bankruptcy of Evergrande, China's 2nd largest developer at the time, which has reached a staggering $300 billion in debt. If anyone is more interested in this story, they can check out the video below:

https://www.youtube.com/watch?v=dnp_MxXY9qs&ab_channel=FinancialTimes

Summary

It's a big unknown whether the problems mentioned will continue to deepen or, instead, disappear. While I don't have a crystal ball, I don't think China is headed for an outright crash. We'll see what the next quarter and economic data brings. We must also not forget the tense situation between China and Taiwan, which could lead to war in a worst-case scenario.

Now a few questions. Would you include any other economic issues here? Do you think that these problems are even deeper than they are being presented? Is war in Taiwan realistic? 🤔