Poor weather conditions and pandemic have hit the profits of Chinese firms. Dangers come also from the reorganisation of supply chains by the United States and the real estate crisis. Government interventions have failed to stimulate domestic demand, a problem for Xi ahead of the 20th Communist Party Congress.
Beijing (AsiaNews) – For China’s economy, scorching heat followed by torrential rains and floods and repeated lockdowns caused by fresh outbreaks of COVID-19 have turned this summer into a nightmare. This comes after it nearly slipped into a technical recession last month.
On an annual basis, the profits of Chinese firms with annual revenues above 20 million yuan (US$ 2.9 million) fell by 1.1 per cent in the first seven months of 2022, China’s National Bureau of Statistics reported last week.
In July, profits dropped to their lowest levels in the last two years, down by 12 per cent on year, and 25 per cent over June.
The decline in domestic demand, the result of the zero-COVID policy imposed by Chinese President Xi Jinping and the rising costs of raw materials (effect of the Russian war on Ukraine) have weighed heavily.
Soaring electricity demand following the extreme heat wave that hit southwest China has also had an impact, causing energy rationing.
In drought-affected provinces like Sichuan and in the Chongqing metropolitan area, forecast torrential rains bring the risk of flooding.
At home, bankruptcy remains a nightmare for several real estate companies, above all the giant Evergrande.
For his part. President Xi has to tackle problems from abroad as well. The United States and its allies are trying to reorganise global supply chains so as to avoid dependence on China, the more so since Beijing undertook military activities around Taiwan.
To reverse the negative trend, China is turning to infrastructure spending, easier credit, and greater controls over local government spending.
However, according to experts, the steps adopted recently by the government will do little to boost consumption – bad news for Xi on the eve of the 20th Congress of the Communist Party of China, where he is seeking a third, controversial mandate.