the nightmare summer of the Chinese economy (and of Xi Jinping)

The adverse weather and the pandemic punish the profits of the Chinese industry. It also negatively affects the reorganization of supply chains imposed by the US and the real estate crisis. The government’s measures fall short of stimulating domestic demand: a problem for Xi on the eve of the 20th Communist Party Congress.

Beijing () – Torrid heat followed by torrential rains and floods; repeated confinements due to the new outbreaks of Covid-19. It’s a nightmarish summer for the Chinese economy, which is struggling to catch up after nearly slipping into a technical recession last month.

In year-on-year terms, the profits of Chinese industries with annual revenues of more than 20 million yuan (2.9 million euros) fell 1.1% in the first seven months of 2022, according to the National Statistics Office. In July, the lowest levels of the last two years were registered, with a drop of 12% compared to the same month of 2021 and 25% compared to last June.

The fall in domestic demand, the result of the “Covid zero” policy imposed by Xi Jinping, and the rise in the price of raw materials (a consequence of Russia’s war against Ukraine) weigh heavily. Energy rationing also affects due to the extreme heat wave in southwestern China and triggered the demand for electricity. In provinces affected by drought and high temperatures such as Sichuan and the Chongqing metropolitan area, the impact of torrential rains in recent days is now expected, with the risk of flooding.

On the domestic front, the nightmare of the risk of bankruptcy remains for several real estate developers, especially the giant Evergrande. Xi’s problems also come from outside. Beijing’s economy is taking a hit from efforts by the US and its allies to reorganize global supply chains to avoid reliance on the Chinese market – a direction that China’s continued military activities around Taiwan only they can reinforce.

To reverse the negative trend, the Chinese government has focused on infrastructure spending, credit facilities, and tighter controls on the economic policies of local governments. However, experts believe that the measures recently adopted by the government can do little to encourage consumption: bad news for Xi on the eve of the 20th Congress of the Chinese Communist Party, where the president is seeking a controversial third term in power.