Chinese Economic Growth Shrinking Under Pressure of Construction Slowdown

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Robison Wells
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Amid worldwide growth in construction, the Chinese government takes another tack: deliberate economic reduction. China's economy, the second-largest globally, increased 4.9% year-over-year, compared to the previous quarter of 7.9%. Factory output, retail sales, and construction caused the slowdown.

The Chinese government feels that reliance on construction debt endangers stability; hence, they have ordered regulators to clamp down.

"Ripple effects to the rest of the world could be significant" due to weaker Chinese demand for raw materials, said Mo Ji of Fidelity International in a report. "Even developed markets, including the U.S., would not be immune to a significant tightening in global financial conditions as a result of a negative China growth shock accompanied by financial stress."

The Chinese government intends to steer toward more sustainable growth based on domestic consumption and away from exports and foreign investments. However, this debt reduction escalates a slowdown in construction and housing sales as demand squeezes the availability of steel, copper, and other imports.

"Growth will slow further," Louis Kuijs of Oxford Economics said in a report.

Factory output in China grew only 0.05% in September, compared to 7.3% in 2020. Still, the market remains volatile. Output grew 18.3% in Q1 of 2021 and leveled off. Retail spending dropped to 4.4% over a year before, down 16.4%.

Imports, an indicator of Chinese domestic demand, rose 17.6% in September over a year earlier, about half the previous month's 33% growth.

When it comes to construction, China intends to play a longer game by increasing reliance on domestic materials and reducing debt. These actions from an enormous world economy could have an impact on the rest of the globe.

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