Chinese Economy Continues to Deteriorate and Oil Prices are Sinking

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    The slowdown in China's economy has reduced the demand for oil and, when combined with the despairing manufacturing figures from other countries, has pushed oil prices down by four percent.

    A Caixin news service poll revealed that Chinese manufacturing activity decreased significantly in July in the wake of the latest coronavirus lockdowns concluded in June, causing an explosive increase in production.

    China Beige Book International (CBBI), a firm of consultants for investors, has reported that the output of factories in July slowed down to levels that were not seen since mid-2020, and retail sector unemployment reached a two-year high, indicating that Chinese corporate and urban managers “simply do not believe that their Covid Zero nightmare is over.”

    “Retailing is in the most trouble. Firm death is almost certainly occurring in the sector now,” CBBI chief economist Derek Scissors explained, revealing the possibility of coronavirus-related lockdowns could resume anytime without warning.

    Other surveys of the economy showed that the Chinese housing market was dropping by 33 percent following an 89 percent jump from the ending of the lockdowns' in June. The Gross Domestic Product (GDP) increased only 0.4 percent in the second quarter and consumers were worried despite seeing a modest 3.1 percent increase in post-lockdown rise in retail sector spending.

    Consumption may be declining due to the weak output of factories and widely publicized layoffs have left many Chinese workers concerned about their job security. Many are taking advantage of an exploding real estate market to sell their homes for cash, thereby recouping the loss of income resulting from layoffs.

    Analysts have compared the current state of China's recovery to the financial crisis and bank scandals in the year 2015. This is because consumer spending continued rising in 2015 while it is now stagnant. Additionally, the real estate industry is plagued by a variety of often-discussed issues that may hinder its ability to save the economy.

    The troubled Chinese real property giant, China Evergrande Group, did not fulfill its promise of a $3 billion “restructuring” plan this weekend analysts told CNBC that the downfall in confidence in the real estate industry could cause the possibility of a “negative feedback loop” that might affect the overall Chinese economy.

    The Chinese real estate sector is in the midst of a unique “mortgage revolt,” with homeowners refusing to make payments because they believe developers will not complete renovation and construction projects.

    “If this problem is not handled properly, it will have a profound impact on the economy, including the government balance sheet, the banks' balance sheet as well, and households,” Standard Chartered economist Shuang Ding explained to CNBC.

    Ding pointed out that the housing crisis may be a significant blow to Chinese government finances, since provincial governments earn a large portion of their income from taxing the sale of land. The imminent collapse of the Evergrande has slowed the market with fear of investors and homebuyers are protesting with the mortgage crisis.

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