By Laura He, CNN Business
China’s economy grew only 4.9% in the third quarter of 2021, the weakest expansion rate in a year as the country faces a major energy crisis, supply chain disruptions supply and worsening debt problems in its oversized real estate sector.
The growth rate compared to a year ago during the July-September period was much slower than the 7.9% year-on-year increase that China recorded in the second quarter. It is also the weakest growth rate since the third quarter of 2020, when GDP also grew 4.9% year-on-year.
Data from China’s National Bureau of Statistics suggests that the Chinese economy has suffered from a series of challenges in recent months.
The country is in the midst of an energy crisis that is shaking the production of factories and leading to power cuts in some regions. This problem was fueled by demand earlier this year for construction projects that require fossil fuels and are at odds with Beijing’s pursuit of ambitious carbon reduction targets. Some factories have reduced work shifts due to electricity rationing. Coal prices are at record highs.
Rising inventories and shipping delays have also hit small manufacturers in China who are now strapped for cash and are forcing them to either cut production or lose orders.
A debt crisis by struggling Chinese conglomerate Evergrande has also raised concerns about contagion risks for the giant real estate sector and the economy in general.
Real estate, along with related industries, accounts for up to 30% of the country’s GDP. An Evergrande collapse could scare investors and buyers alike at a time when property sales and construction activity are already slowing. A potential wave of developer defaults could have a significant impact on growth and pose risks to financial stability.
Yet authorities have sought to allay fears about these issues affecting the economy.
The People’s Bank of China said on Friday that Evergrande had mismanaged its affairs but that the risks to the financial system were “controllable”.
The government used similar language on Monday to temper concerns about the energy crisis. Fu Linghui, spokesperson for the National Bureau of Statistics, said that “the limited energy supply is only a phase and the impact on the economy is controllable.”
Fu also pointed out that global energy prices had “risen sharply” since the start of the year, and warned that China’s electricity and coal supply was tight. Still, he said the crisis would be “eased” as the government implements measures to bring the problem under control. Earlier this month, for example, China ordered coal mines to increase production.
China is still on track to meet Beijing’s annual growth target of over 6%. For the first three quarters of 2021, GDP grew 9.8% compared to a year ago, when the Covid-19 pandemic was wreaking havoc.
But authorities are still warning of future concerns. Fu noted that the economic recovery is “still unstable and uneven”.
“The challenges of keeping the economy running smoothly have increased,” he added.
This is a developing story and will be updated.
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