{"id":27075,"date":"2023-12-13T10:39:07","date_gmt":"2023-12-13T10:39:07","guid":{"rendered":"https:\/\/cahootie.com\/?p=27075"},"modified":"2023-12-13T10:39:07","modified_gmt":"2023-12-13T10:39:07","slug":"china-economy-close-to-vicious-loop-threatening-beijing-with-financial-chaos","status":"publish","type":"post","link":"https:\/\/cahootie.com\/world-news\/china-economy-close-to-vicious-loop-threatening-beijing-with-financial-chaos\/","title":{"rendered":"China economy close to vicious loop threatening Beijing with financial chaos"},"content":{"rendered":"

China at the \u2018height of its power\u2019 claims John Bolton<\/h3>\n

China could face a “vicious loop” of spiralling economic decline as its gross domestic product deflator contracted over two consecutive quarters.<\/p>\n

The issue has left Beijing’s GDP growth lagging behind at just 3.5 percent in the third quarter of 2023 – just over half of the United States’s 6.4 GDP growth.<\/p>\n

Morgan Stanley’s top Asia economist Chetan Ahya warned that instances of deflation could wreak considerable havoc.<\/p>\n

Ahya said: “A deflationary backdrop poses a few challenges.<\/p>\n

“First, real rates after taking into account deflation will rise, increasing the burden on debtors. Second, even as debt growth slows, it will probably remain higher than nominal GDP growth.<\/p>\n

<\/p>\n

“And so debt-to-GDP ratios will continue to climb. More crucially, a weaker GDP deflator negatively affects the trends in corporate revenues and profits.<\/p>\n

“If deflation continues to eat into these, companies will cut wage growth, creating a vicious ‘loop’ of even weaker aggregate demand and deflationary pressures.\u201d<\/p>\n

China has been contending with slack demand, excess industrial capacity, weak consumer confidence and “certain risks and hidden problems”, according to a new report from the official Xinhua News Agency.<\/p>\n

Moody\u2019s Investor Service downgraded China\u2019s sovereign debt rating as the country\u2019s real estate crisis seeps into local governments and private financing.<\/p>\n

It also downgraded ratings for some major Chinese banks and insurance companies.<\/p>\n

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Writing in The Finacial Times, Ahya added: “The deflationary pressures in China stem from the deleveraging of the balance sheets of the property sector and local governments.<\/p>\n

“When you consider that the combined debt on these balance sheets accounts for about 100 percent of GDP, it is hardly a surprise that demand and price pressures are as weak as they have been.”<\/p>\n

Wholesale, or producer prices, have fallen year-on-year for all of 2023, dipping to a low of minus 5.4 percent in June.<\/p>\n

Consumer price inflation has hovered near zero percent or below in annual terms since April.<\/p>\n

The property sector, a major source of demand for any major economy, has stalled with dozens of developers defaulting on their debts and struggling to finish the apartments they promised to deliver.<\/p>\n

In response, the government has eased borrowing rules and cut mortgage rates for first-time homebuyers while providing some tax relief measures for small businesses.<\/p>\n

Late last month, it announced plans to issue 1 trillion yuan (\u00a3263,440 million) in bonds for infrastructure projects and disaster prevention, dipping deeper into deficit to try to nudge the economy into higher gear.<\/p>\n