China finds it difficult to achieve its growth target in 2021
Veteran economist Stephen Roach said that China is unlikely to achieve its growth target of 5.5% this year.
According to Mr. Stephen Roach, China’s economy is facing “big risks” and it is difficult to achieve the target of 5.5% economic growth this year. Mr. Roach, former president of Morgan Stanley Asia, has been following the Chinese economy for years.
“I think the Chinese economy is facing tremendous pressure. It’s going to be very difficult to put the growth forecast at 5.5%,” Roach told CNBC.
Beijing has officially set a growth target of around 5.5% for the economy this year. However, given the current pressures, Mr. Roach predicts “it would be very lucky if the number is 4%”.
Veteran economist Stephen Roach said that it is difficult for the Chinese economy to achieve the target of 5.5% growth as set forth.
Over the past several weeks, China has faced the most severe outbreak of COVID-19 in the mainland after the first shock in early 2020. Newly released data recently showed a significant deceleration of the economy. various manufacturing and service sectors.
According to statistics, people in China spent 43% less on travel during the 5-day International Labor Day holiday compared to the same period in 2021.
China’s domestic tourism revenue has fallen to 64.7 billion yuan, the Ministry of Culture and Tourism said. 160 million trips were made during the holiday, marking a drop of 30.2% year-on-year.
Over the past holiday, hotels across China have slashed prices by as much as 50%, with room rates in many cities in the country falling to five-year lows, Reuters news agency also reported.
The pursuit of the “Zero COVID” strategy makes the world’s No. 2 economy face many challenges. In particular, many multinational corporations have voiced their difficulties in the market of billions of people. Starbucks said sales in China fell 23% year-on-year. According to FactSet, the number was much worse than analysts had predicted. Meanwhile, DuPont, which sells multi-industry products and building materials, just announced its second-quarter plan that fell short of analysts’ expectations.
In a newly released report, Estee Lauder said: “The resurgence of COVID-19 in many provinces in China may cause retail traffic, travel and distribution to be temporarily limited. The company’s distribution facilities in Shanghai will operate at limited capacity to fulfill physical and online orders starting mid-March 2022.”
Estee Lauder’s guidance for the fiscal year ending June 30 predicts revenue growth of 7% to 9%, well below FactSet’s expectation of 14.5%.
In the first quarter, nearly half of the stocks on the mainland China MSCI exchange missed first-quarter earnings expectations, Morgan Stanley analysts said. This was the worst quarterly result since the first quarter of 2020. That’s when the pandemic kicked in and shocked the economy.
Also in the conversation with CNBC, Mr. Roach warned, pressures on the Chinese economy also affect the global economy.
“From 2009 to 2012, China grew 8%, and that cushion kept the world from falling back into recession. Now, that cushion is gone. China will hardly save the world the way it did after the global financial crisis. This is also a problem for the global economic outlook, ”said Mr. Roach.
Morgan Stanley analysts said that in the first quarter, almost half of the stocks on the mainland China MSCI, had missed first-quarter earnings expectations (Artwork).
China faces a big wave of divestment
Before the US Federal Reserve (FED) stepped up to tighten monetary policy, China is forecasted to face the trend of foreign investors withdrawing capital from this market.
The fact that the Fed raises interest rates often has a spillover effect on cross-border capital flows, so in the short term, the renminbi will likely continue to be under pressure to depreciate against the dollar, leading to the tendency of foreign investors to withdraw. capital from this market. In fact, in March and April, investment flows out of China increased sharply, reaching a record high.
Many experts believe that this trend will not be too severe, because China has a large domestic economy, relatively good fundamentals, large foreign exchange reserves and a stable trade surplus. This will help create a buffer zone to limit the impact of the Fed raising interest rates.
“Currently, China’s inflation rate is relatively low and real interest rates are still higher than foreign ones. Therefore, after some short-term adjustments, cross-border capital flows will continue to flow into China. China to buy yuan-denominated assets. Despite short-term fluctuations in the market, the positive trend in medium and long-term investment will not change,” said Mr. Wang Youxin, senior expert, Institute Research Bank of China, comments.
However, economic uncertainties from the COVID-19 epidemic, geopolitical risks, could further complicate challenges for China’s capital markets and weigh on the renminbi. This requires Beijing to come up with policies to ensure economic growth.
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