Forget the commercial war, the Chinese economy has other big problems

Beijing is already struggling with other problems that the commercial war could exacerbate. The Chinese economy is growing at its slower pace since the global financial crisis. It is laden with debt and concerns over the housing bubble and the weakening of the currency.
Despite the new Trump administration rates on $ 200 billion Chinese goods continue to grow strongly, with an increase of 16% in October. But it could change in the coming months if the tariffs rise to 25% from 10% at the end of December, as they threatened the United States, adding to the growing list of problems in China.
The Chinese economy grew rapidly in the years following the global financial crisis, thanks to repeated bingeing of debts.
"The growth of China has been characterized by a high credit intensity," said Gerard Burg, senior economist based in Sydney at the National Australia Bank. The total amount of debt in the Chinese financial system is now several times the size of the entire economy.

Some of this money went to the construction of bridges, roads and other infrastructure. But many things ended up in less productive parts of the economy, like large and inefficient companies run by the state. The most dynamic private sector has not benefited from it.

At the end of last year, Beijing intensified its efforts to curb high levels of debt, which is one of the main reasons why the economy is losing momentum.

The Chinese economy is growing at its slowest pace since the financial crisis

Some analysts are skeptical about the Chinese government's commitment to clean up its financial system, especially when the slowdown deepens and the trade war intensifies.

According to Kevin Lai, economist at the Daiwa Capital Markets investment bank, many provincial governments and state-owned companies would find it difficult to stay out of the water without regular low-cost credit injections.

Cutting their credit lines "would have very negative repercussions, such as social unrest, layoffs and bankruptcies," Lai said. This is a scenario that Beijing wants to avoid.

Currency on the rise

The government is also trying to defend itself pressure on the Chinese yuan, which has sunk more than 9% against the dollar since January. He was hurt by concerns about the health of the Chinese economy and the rate hikes by the US Federal Reserve that pushed the greenback upward.

The weaker yuan has boosted China's huge export industry, as it makes Chinese products cheaper on global markets. But the collapses of the yuan have caused headaches in the past.

In the midst of strong declines in 2015 and 2016, large sums of money came out of China as investors bet that the yuan would continue to fall. The crisis has forced Beijing to spend hundreds of billions of dollars to support its currency.

The yuan has sunk by more than 9% against the dollar since January.

One yuan that falls quickly could become a vicious circle, according to Manu Bhaskaran, founder of the Centennial Asia research company based in Singapore.

"There could be a huge outflow of capital and this could feed itself," he said.

It seems that Beijing has once again begun to plunge into its huge foreign currency bank in recent months to slow down the yuan's decline, according to research firm Capital Economics.

Real estate bubble

Another threat lies in the overheated real estate market in the country.

Prices have more than doubled in the last decade, according to research firm Gavekal, fueled by low interest rates and a lack of housing in major cities.

But the real estate market now "seems to show some cracks," said Aidan Yao, senior economist at emerging markets at AXA Investment Managers. He pointed to some cases of large property developers who cut prices in the face of a weakening of demand.

Chinese officials have struggled to curb skyrocketing prices in cities like Beijing.

"It's just a matter of time before the market gets cold," Yao added.

The real estate industry has been one of the few bright spots for the Chinese economy this year, but it turns into a weight if it collapses, according to analysts of the research firm Fitch Solutions.

"This will add another layer of pressure," they wrote in a note to customers last month.

Chronic problems

Chinese officials have turned to slower fiscal cuts, infrastructure spending and monetary policy as they seek to support growth. But some experts think that these are the wrong recipes for the economic problems of the country.
How the trade war could make China even stronger

"China's problems are chronic, not acute," said Derek Scissors, a Chinese expert at the American Enterprise Institute, a Washington-based think tank.

In his view, the main issues, such as the rapid aging of the Chinese population and the non-competitive business environment, are largely ignored.
The Chinese government has loosened its decades-long one-child policy and has sought to increase competition with plans to give foreign companies greater access in sectors such as banking and automobiles.

But the moves came too late or did not go far enough, raising serious concerns about China's long-term economic future, according to Scissors.

"The old indebted economies do not grow," he said



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