What happens in the Chinese economy has material implications for the SA economy

First, post-pandemic inflation in the US is forcing the Federal Reserve to raise rates aggressively, in all likelihood pushing the world’s largest economy into recession. 

Second, an energy crisis in Europe sparked by Vladimir Putin’s retaliation against sanctions will almost certainly mean recession in the UK and Europe. 

Finally, the outlook for the Chinese economy is starting to look increasingly dire. Although less understood than the first two dynamics, it is arguably this third factor that will have the most profound effects on the fortunes of South Africa’s own sputtering economy.

There are three challenges facing the Chinese economy. First, China’s zero-Covid policy has led to anaemic consumer spending and employment growth in what has been the growth engine of the global economy over the last three decades. Ever since the first outbreaks of Covid, retail sales and consumer confidence have been throttled by each wave of infection and ensuing lockdown. Youth unemployment is now a worrying 20%. This would have been unthinkable only a few years ago.

Second, Chinese monetary policy is essentially in a liquidity trap. Despite cutting interest rates to their lowest ever at 2.75%, and repeatedly cutting bank reserve requirements in an effort to encourage lending, appetite for loans is moribund.

Finally, fixed real estate investment has evaporated, with house prices and new home sales falling sharply. According to research from global financial services group Nomura, in some areas like Chongqing and Fuzhou, new home sales are down almost 80% from a year ago, while overall they are down about 40% across the country.

This story first appeared in our weekly Daily Maverick 168 newspaper, which is available countrywide for R25.