Beijing Tea Leaf Reading Suggests Economic Downturn Likely

October 31, 2021 Updated: November 3, 2021

Commentary

China’s “economic miracle” looks poised to be in the rearview mirror, as Party leaders appear to be preparing the country for a period of slowing growth going forward.

In October, Beijing announced sharply lower third-quarter official GDP growth figures, with a 4.9 percent mark that missed economists’ consensus by 30 basis points. In late October, state-run news agency Xinhua published a long document titled “10 Questions About the Chinese Economy” that went in-depth to explain several economic, financial, and social-economic hot topics currently facing China.

The article was widely republished across numerous state-controlled media including People’s Daily, the Chinese Communist Party’s (CCP) official mouthpiece.

What is being discussed? The article points out that China’s economy has maintained a recovery trend in a “reasonable range,” but concedes that the country faces numerous headwinds as “economic growth has fallen, commodity prices have risen, and power rationing in many places across the country.”

The article details how one should view topics such as current economic growth trends, the longevity of consumer consumption, how to think about high-quality economic development, how to preserve the momentum of foreign trade, how to deal with power curtailment effectively, how to cope with global supply chain restructuring, how to achieve Xi Jinping’s “common prosperity” goals, how to think about the technology industry and recent anti-monopoly policies, how to alleviate poverty and jumpstart rural revitalization, and how to deal with risks facing the financial sector.

It’s an intriguing document in that it touches upon almost all recent economic and financial hot topics, including most of the severe challenges facing China as it struggles to emerge from the CCP virus pandemic.

But it’s also a departure from recent CCP messaging, which has been forceful and matter of fact.

There could be a few reasons for this. For Beijing authorities to come out and issue a deep dive of such magnitude may be a sign that prior messaging of certain policies—for example, the technology industry crackdown—may have missed their targets. Or that there’s a sizable portion of the populace that may not understand or agree with existing economic policies. Regardless, it likely also means that CCP authorities want to front-run any external discourse in order to prepare the country and set the stage for a prolonged period of slowing economic growth.

In other words, the CCP is preparing the people for a “new normal” of stagnant growth and a tough economic environment going forward.

We can look to the property market for manifestations of this slowing growth that Beijing is preparing for. Property developers Evergrande, Kaisa, Modern Land, Fantasia, and Sinic all face various degrees of financial challenges, months after Beijing issued guidelines to restrict financing on overleveraged real estate firms.

While Evergrande has restarted construction around the country after shutting down over the summer, real estate development activity will slow going forward. And that means lower GDP growth, fewer construction jobs, and lower levels of supporting activity such as bank lending and purchases of furnishings.

Tax policy also is a factor in deterring homeowners from purchasing multiple properties. The State Council, the Chinese regime’s cabinet-like body, has begun selecting regions to enact the first wave of a pilot program to tax owners of land, as well as residential and commercial real estate. Long rumored, this is a landmark program that could levy real estate taxes on Chinese property owners for the first time. The announcement also said the pilot program will last five years, meaning it would likely be 2027 before the National People’s Congress, the regime’s rubber-stamp parliament, turns it into law countrywide.

This delayed implementation reflects both the importance of this tax as a revenue driver for the CCP as well as authorities’ trepidation in introducing such a cost burden. But it appears Beijing is ready to face any blowback against this measure.

Even the usually bullish economists are projecting China’s lowest GDP growth in decades. Capital Economics estimated that China’s official GDP growth could slow to only 3 percent next year, citing cooling consumer and capital spending.

“Industry and construction are on the cusp of a deeper downturn,” the firm wrote in a note to clients.

China is entering uncharted waters with its economy. Are this group of CCP regime leaders and the current generation of consumers prepared for what lies ahead?

Views expressed in this article are the opinions of the author and do not necessarily reflect the views of The Epoch Times.

Fan Yu
Fan Yu is an expert in finance and economics and has contributed analyses on China's economy since 2015.