The Chinese government saw the writing on the wall. Unfortunately, the Evergrande crisis might be too big for the CCP to stop it.
The Chinese government has stepped in to boost markets struggling with deflation. On Monday, the Chinese Communist Party (CCP) announced the halving of the stamp duty needed to trade on China’s markets.
Furthermore, Beijing opened 37 retail funds to revive both markets and the housing sector.
The Shanghai Composite rose 1.13% on Monday following the announcement, while China’s blue-chip index (CSI) rallied by 1.17%. Shanghai is China’s internal stock exchange, as opposed to Hong Kong’s focus on offshore stocks.
European and American markets also had a positive response. The S&P 500 rose and the Dow Jones rose by 0.67% and 0.73% respectively; while the STOXX Europe 600 index rallied by 0.44%.
Nevertheless, analysts deem the new measures not enough to stop China’s crisis. The eastern dragon fell into deflation as economic growth failed to meet post-Covid market expectations.
China’s GDP rose less than expected in the second quarter, while trade activities plummeted to pandemic levels.
The CCP had promised in July to forcefully revive the market. However, the biggest culprit of this crisis lies in the US trade war against Beijing.
Technological and economic restrictions against China forced Beijing to focus on internal demand. The “world’s factory” is no more, with its consequences both at home and abroad.
The Evergrande conundrum
The other spine in the Chinese economy’s thorn is the real estate giant Evergrande. On Monday, following the official announcement of its bankruptcy, Evergrande shares dropped 80%.
The Evergrande crisis started in 2021 when the company revealed its assets were not enough to cover its debt. Since then, the Chinese government tried to control Evergrande’s collapse without sending shockwaves through the economy.
Unfortunately, it seems the strategy did not work as Evergrande’s debt continued getting higher while finding it increasingly difficult to sell the remaining assets.
Eventually, the company filed for Chapter 15 bankruptcy in a US-based court.
The real estate market amounts to 30% of China’s economy, with some analysts predicting a small “Lehman Brothers” crisis for the country.
Other real estate developers like Country Garden signaled their inability to settle their debts.
Many experts worry that the Evergrande crisis signals the start of an economic slowdown for China, similar to how Japan’s economy flatlined after two decades of economic miracle.
China’s hegemonic attempts (like the expansion of the BRICS) could be thwarted by the country’s sluggish economy. Or, in the worst-case scenario, they might be enhanced if Beijing believes the United States is causing the crisis.
In any case, dark times lay ahead for China’s and, possibly, the world’s economy.
