BY SHIVANGEE
China, which is known to be one of the largest economies in the world, is facing a major disturbance due to COVID-19 restrictions, power shortages, and the real estate crisis. China might be facing a slow economic crisis. The fall in GDP from 4.9% to 4.1% is simply hinting that there are more struggles to arrive this year in 2022 not only for China but also for global growth.
In 2019 China remained silent about a virus outbreak and gave the world the covid-19 pandemic. Could these issues be the start of China exporting an economic pandemic?
What is the Evergrande crises?
China’s Evergrande crisis, also known as China’s real estate crisis, has been making headlines in the media worldwide. Evergrande Group is the biggest real estate developer in China and is now standing in the field of bankruptcy due to failing to meet the deadline for repayment to its international investors. Markets are in horror imagining its effects on economies. This company owes more than $300 billion to its creditors. Right now there are more than 800 hundred unfinished projects that Evergrande has and more than 1 million people are still waiting to move into their dream homes and, likely, they may never get to see them. China still says that the situation is stable like it did during the covid-19 outbreak, though the actual situation of china does not seem to be looking very stable, people have been protesting in front of the Evergrande office and a woman even tried to commit suicide. China’s real estate growth has always been fueled by debt and this debt is so big and heavy now that it is getting out of China’s hands and could pop anytime.
Evergrande walked itself into the crisis by initiating all its projects with the help of debts and when this debt bubble felt like it could burst anytime, it had to hire many financial advisors and it ultimately tried selling some of its business and assets which eventually triggered the crisis even more. This whole situation has made Evergrande’s share price fall by almost 80% over the last year. This crisis might put a pause to China’s miraculous growth.
HOW IT MIGHT AFFECT THE WORLD: The richest 500 people in the world, including Jeff Bezos, Elon Musk, and Mark Zukerberg have lost $135 billion combined due to the Evergrande crisis. China is the biggest contributor to global economic growth and is also known as the world’s manufacturing hub, so if China’s economy falls, the world will surely be affected by it. Though analysts say that it might not have a huge impact on the world as a whole like it did in 2008 during the Lehman’s crisis as China is a closed economy. Though it might be affecting India’s metal sector as India exports metal to China and if the housing projects stop in China, it will put a pause to these exports. So China’s real estate slow down will impact emerging markets like India. “Authorities and local governments are resolving the situation based on ‘market-oriented and rule-of-law principles,” People’s Bank of China official Zou Lan said at a news briefing on Friday. The central bank has asked lenders to keep credit to the real estate sector “stable and orderly,” said Zou, who is head of the financial market department.
China’s power crises
While the Evergrande crisis was not even over yet, China already started facing a power crisis which is said to be the worst in a decade. China is the world’s biggest consumer of coal power energy. Around 50 percent of the world’s consumption of coal is done by China only.
Recently Xi Jinping has made an unrealistic commitment to go carbon neutral by 2060 which has triggered this crisis. This commitment sounds very unrealistic because China has not come up with any alternative energy options or plans to meet its commitment. Since September 2021 costs of electricity and coal have risen in China leading to the shortage. To cut down its carbon emission China has cut down its coal production. As the world is starting to reopen after the pandemic, the demand for products made in China is increasing and increasing demand means China has to fuel its production and for production, energy is needed but currently, China’s coal production capacity is unable to meet its industrial demands. In fact, the demand is not only from the industries but also from the households as winter is coming and people need electricity for heating purposes and to run the other electric appliances. Instead of coming up with alternative energy options, China has increased its electricity prices to lower the consumption of electricity but this did not work out as several industries had to shut down for days and millions of people faced a blackout due to the massive power shortage which forced the Chinese government to restart coal production and look for importing more coal from countries like Russia, Indonesia, and Mongolia. This might affect the supply chain in the longer term.
Conclusion
Though some analysts say that these crises will not affect the world so much, it still is a piece of threatening news for both China and the world. In 2003 China’s share in global output was 8.9% which increased to 20% in 2019 which reduced to 18.62% in 2021 which has more than doubled compared to 2003. China’s share in global exports was 6.2% in 2003 which increased again more than twice to 14.7% in 2020. These numbers might be good news for China but not for the world, because the global dependency on China suggests that any meltdown in China would have a ripple effect. According to the above analysis, such a situation is highly likely to happen.
According to Gregory Daco, countries highly dependent on China like Vietnam and Thailand should loom larger in the global economy. And for America “everything will depend on political stability” said Daco.
ABOUT THE AUTHOR
Shivangee is a first-year B.com prog. student in Kirori Mal college. She is an introvert and likes spending a lot of time with herself without getting bored. She loves researching certain topics like neurodivergence and human behavior. She is often found researching, reading novels, or crying about her impulsive decisions.
Disclaimer: The views expressed in this article are the author’s own and do not necessarily reflect the views of the organization.
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