Chinese economy lacks new growth drivers, says China Beige Book

The CEO of a China-focused research firm said the slowdown in China’s real estate sector is hurting economic growth – and it’s not clear that there are new growth drivers to offset the slack.

Leland Miller, CEO of China Beige Book, said in an interview with CNBC’s Squawk Box Asia on Tuesday.

He was referring to the long-running Chinese Communist Party in Beijing.

“They hope it will be consumption, but it is not consumption yet,” he added.

China on Monday posted a disappointing 4.9% year-on-year growth in the third quarter. The country’s National Bureau of Statistics said there is a slowdown in the real estate sector’s contribution to the economy.

Beijing has stepped up efforts to rein in debt-laden property developers as it wants to move away from investment-led investment. and the debt-driven economic growth model. That left Evergrande and other Chinese developers struggling to repay their debts.

At the same time, China has not done enough Miller said progress is moving toward a consumption-based economy. He said structural changes that could boost consumption – such as strengthening the currency and increasing the social safety net – were still absent in China.

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“Yeah, you’ve seen a drop in investment in the last several years, but you haven’t seen a rise in consumption. So right now, that’s a target but it’s a target that hasn’t been worked towards — it’s not close to the data and I think that’s a huge concern going forward,” Miller said. .

The latest official data showed that investment in fixed assets in the first nine months of 2021 grew 7.3% from a year ago – missing expectations for a 7.9% increase expected by analysts polled by Reuters.

Meanwhile, retail sales rose 4.4% in September from a year ago, topping analysts’ expectations for 3.3% growth.

Falling home prices could hurt consumption

Michael Pettis, a professor of finance at Peking University in Beijing, said the challenges facing China’s real estate sector could weigh on consumer spending.

Pettis said home ownership accounts for about 80% of the average Chinese’s wealth.

“The reason we worry so much about consumption is housing prices,” the professor said in an interview with CNBC’s “Street Signs Asia” on Tuesday.

“If we see a fall in house prices, it will reduce the perceived wealth of households, and they usually respond by cutting spending and rebuilding their savings. If that happens, it will be detrimental to consumption,” he said. .

With the Chinese economy slowing, Bettis said, consumption will hold up better than other investment-led sectors such as real estate.

“If China does it right, consumption will continue to grow a little slower but still very flat,” the professor said.

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