ADB cuts China’s GDP forecast on ‘Zero-COVID’ concerns and real estate crisis – defaults and loan boycotts

Manila: ADB cuts China’s GDP forecast on ‘Zero-COVID’ concerns and real estate crisis – defaults and loan boycotts

The Asian Development Bank (ADB) has cut its growth forecast for China to 4% in 2022 instead of 5% due to concerns over the country’s zero-Covid approach and strict lockdowns, which has deepened the crisis in already battered real estate sector reeling with high level of debts and mortgage defaults. In its flagship report, the “Asian Development Outlook” released on Thursday, ADB said China’s continued “adherence to a zero-covid strategy in response to renewed outbreaks early in 2022 has triggered the reimposition of strict lockdowns.” Amid a slowdown in China, ADB cut Asia’s growth forecast to 4.6% as the prolonged war in Ukraine has pushed commodity prices higher and triggered monetary tightening by many central banks to control the inflation. For 2023, ADB lowered its economic growth projection for developing Asia and the Pacific region to 5.2% from 5.3%, while raising the inflation forecast to 3.5% from 3.1%.
In addition to lockdown-induced weakness in household consumption, a further burden on China’s economy “is that the housing market has not stabilized,” ADB said in the report. Household demand has been hit by recent Covid-19 outbreaks, which has placed further stress on the property market, it noted. ADB pointed out in its report, China’s property sector has been reeling from defaults and mortgage boycotts, which could also dampen growth. According to Moody’s estimates, real estate and related industries account for more than a quarter of China’s economy.
Due to huge debt loads on Chinese real-estate developers including Evergrande with about $300 billion of debt and financing problems, hundreds of housing projects across the country remain unfinished, sometimes for years, triggering widespread anger among buyers who are typically required to pay the full cost of their homes in advance. Homebuyers in these stalled projects have warned that they would stop paying mortgages until their homes were completed, raising fears of a collapse among banks that had lent them money. The crisis in real estate is across the country including the financial capital Shanghai where has been affected by constructions halt. Chinese banking system is also hit by a national scam where amount worth USD 1.5 billion have been frozen triggering huge protests by account holders in Henan and Anhui provinces.
Last week, China reported GDP growth of just 0.4% in the second quarter from a year ago, missing expectations as the economy struggled to shake off the impact of Covid controls. Senior Chinese officials have conceded that it is difficult to achieve the official GDP growth target of 5.5% in 2022 due to the economic fallout of the stringent “Zero-COVID” policy anchored by none other than Chinese President Xi Jinping.
In the second quarter of 2022, China faced its worst Covid outbreak since the height of the pandemic in early 2020. While the central government has taken steps to cut the quarantine period and eased some Covid prevention measures in general, Zero-COVID policy keeps bringing the lockdowns back as officials do not want to take any chances ahead of the crucial 20th Party Congress expected to be held in coming autumn where President Xi is expected to take the reins for a precedent breaking third time.