The Covid Pandemic and Ukraine war has created so much chaos that the investors are reluctant to invest, industrial output are negligible and economic activities are at a standstill. Countries like China, who are still fighting to curb Covid, are facing a shortfall of cash, and economic slowdown has almost brought the country into bankruptcy.
China, the second largest economy of the world, which holds the largest forex reserves of about USD 3,480 billion, is distant from bankruptcy in near future. But, the toughest lockdown, successive Covid waves and lower industrial output have brought the country on the verge of payment crisis. Reports are suggesting that the country, which used to distribute money for ‘free’, has seen a GDP expansion of mere 0.4% in the first quarter of 2022.
Chinese economy at standstill
Reports suggest that the economic slowdown is expected to go down further due to the unending Covid spread and lockdown thereof. Fu Linghui, a spokesperson of China’s National Bureau of Statistics, explaining the future decline of the Chinese economy said, “There are challenges to achieve our expected economic growth target for the whole year”.
It is pertinent to note that China was expecting a 5.5% GDP growth rate, as the world economy was opening and countries were healing from the Chinese virus. But, Russia’s war with Ukraine and mutation of the virus brought the Chinese economy to standstill, and its economic expansion remains much below the target at 2.5%. The war induced energy crisis escalated the global recession and repeated mutation of the virus forced China to close its country.
China suffered both internally as well as internationally. On one hand external demand decreased while on the other, internally due to lockdown, the industrial output also remained negligible.
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People don’t have money
Recently, there was news about the ignition of a barter system in real estate business, in which property developers were accepting payments in watermelon, wheat or garlic. The crisis in real estate is mounting due to the lower property buyout. Due to the non-payment of EMIs, property developers are facing a huge liquidity crisis, as they are struggling to pay the loans of banks.
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Lower economic activities have slumped the demand by 32% and property developers are on spree to mortgage the property to recover the money. But, the mortgage is also not an easy job for the developers, as home buyers have refused to pay mortgages and they are organising a social boycott of EMI payment.
This payment crisis even brought Evergrande, the second largest property developer of China, to default on its debt. As the real estate sector accounts for 29% of China’s GDP, the bankruptcy of real estate will bring China to bankruptcy.
The payment crisis has encircled China from all corners. As the cash shortfall was increasing due to the lower output, banks resorted to freezing cash withdrawal, citing some vague reasoning of “financial crimes”. This ignited a mass protest throughout China.
Disgruntled depositors in Henan protested outside the Henan office of China Banking & Insurance Regulatory Commission in Zhengzhou, demanding their deposits back…
This took place on May 20 or 19.
— Byron Wan (@Byron_Wan) May 21, 2022
18% of China’s GDP comes from the export of goods and services. Due to the lower demand of products from the world, it has further aggravated the problem. Moreover, when India started to open its economy, China was once again hit by a new variant of the Covid.
Dealing with successive waves of Covid, China was not able to open its economy and incurred huge losses due to this. According to a report, 54.4% of the national GDP and half of the population were negatively impacted by the harsh lockdown and the latest outbreak of the Chinese Virus.
The whole economic crisis has brought China on the verge of bankruptcy as people don’t have money to spend, industries are not able to generate resources, and a lot of debt is on default.
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