The Delta Covid variant is hitting the Chinese economy hard and a real estate crisis is approaching

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Retail sales suffered problems in August, up just 2.5% from the previous year, according to government statistics released Wednesday. This was much weaker than expected and a dramatic slowdown from the 8.5% rise recorded in July.

Chinese authorities attributed the slower growth to Covid-19 outbreaks and floods, which prevented people from traveling and caused them to withhold “summer vacation spending,” according to Fu Linghui, a spokesman for the Bureau. National Statistics, who spoke at a news conference in Beijing on Wednesday.

Industrial production increased by 5.3% in August compared to the previous year, also slower than in July and the weakest growth generated by Chinese factories in a year.

Investment in urban areas, on the other hand, increased by 8.9% during the period from January to August, falling from 10.3% during the first seven months of the year.

The data published on Wednesday is the highest absolute demonstration of how much the actions the government has taken to curb an outbreak of the Delta variant this summer have affected the economy. To stop new infections, China has pursued an aggressive strategy of zero covetousness, blocking cities, canceling flights and suspending some port operations.

The approach worked to re-control the virus, albeit at the expense of economic activity.

But the Chinese economy also faces other concerns, including the real estate crisis.

New housing projects, measured by area, fell by 3.2% during the first eight months of the year.

“The headwinds in the real estate sector appear to be intensifying,” Julian Evans-Pritchard, senior economist at Capital Economics in China, wrote on Wednesday. He added that government restrictions on lending among real estate developers are putting pressure on the sector.

Chinese real estate giant Evergrande is once again warning that it could default on its huge debts
Recently, the monetary crisis of Chinese real estate giant Evergrande has worsened significantly and the company has warned that it could default on its huge debts while struggling to cut costs or find buyers of some of its assets.
The company, one of China’s largest real estate developers, has already sparked market turmoil in the country as its bonds and shares have fallen. Investors worry that a default could have serious effects on China’s banking system and the economy in general, as well as causing social unrest. Already investors and the company’s own employees They reportedly protested at Evergrande headquarters in Shenzhen, as well as in Sichuan, Jilin and Henan provinces.

Meanwhile, the coronavirus may continue to upset the economy. A new outbreak in southeast Fujian Province “presents a downward risk to our forecast recovery of growth” in the fourth quarter, after a weak third quarter, wrote Louis Kuijs, head of Oxford Economics Asian Economics, in a research report Wednesday.

He added that he hopes that “a narrow stance will be maintained on the financing of real estate developers and that the regulation of Internet companies will weigh on sentiment and growth,” in reference to government repression against large technology companies.

But Kuijs added that the Chinese government will likely be willing to avoid a sharp slowdown. He hoped the authorities would support growth in the coming months by lowering interest rates and allowing local governments to issue better bonds to finance infrastructure projects.

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