Forget the trade war, China's economy has other big problems


Beijing is already struggling with other problems that the trade war could exacerbate. China's economy is now growing at its slowest pace since the global economic crisis. He is loaded with debts and faces worries about a real estate bubble and weakening currency.
Despite the new Trump's invoices to $ 200 billion Chinese products, exports continue to grow strongly, recording an increase of 16% in October. But that could change in the coming months if tariffs rise to 25% from 10% at the end of December, as the US threatens, adding to the growing list of China's problems.
The Chinese economy expanded rapidly in the years after the global financial crisis thanks to repeated charges.
"China's growth is highly borrowed," said Gerard Burg, a senior economist at the Sydney-based National Bank of Australia. The total amount of debt in the Chinese financial system is now several times the size of the entire economy.

Some of this money has gone into building bridges, roads and other infrastructure. But many have come to less productive parts of the economy, such as large, inefficient state-owned enterprises. The most dynamic private sector has not benefited so much.

At the end of last year, Beijing stepped up its efforts to curb high levels of debt, which is one of the main reasons why the economy is losing momentum.

China's economy is growing at its slowest pace since the economic crisis

Some analysts are skeptical about the Chinese government's commitment to clean up its financial system, especially as the slowdown is deepening and the trade war is intensifying.

Many provincial governments and state-owned companies will try to stay above water without regular cheap credit injections, according to Kevin Lai, an economist at Daiwa Capital Markets.

Reducing their credit lines "would have a very negative impact, such as social unrest, redundancies and bankruptcies," Laj said. This is a scenario that wants to avoid Beijing.

Fall of currency

The government is also trying to avoid pressure in China's yuan, which has plunged more than 9% against the dollar since January. It has been hit by the health concerns of the Chinese economy and the US Federal Reserve interest rate hikes that have pushed the dollar.

The weaker yuan has boosted China's vast export industry as it makes Chinese products cheaper on world markets. But the fall in the yuan has caused headaches in the past.

Between sharp cuts in 2015 and 2016, huge sums of money were flooded by China as investors bet that the yuan will continue to decline. The crisis forced Beijing to spend hundreds of billions of dollars to support its currency.

Yuan has sank more than 9% against the dollar since January.

A sharp fall in the yuan could become a vicious circle, according to Manu Bhaskaran, the founder of the Centennial Asia research firm based in Singapore.

"There could be a huge outflow of capital and it could feed itself," he said.

Beijing seems to have started to enter its massive foreign currency war in recent months to slow down yuan cuts, according to research firm Capital Economics.

Real estate bubble

Another threat lies in the country's excessive property market.

Prices have more than doubled in the last decade, according to research firm Gavekal, which is affected by low interest rates and lack of housing in large cities.

But the real estate market now "seems to be showing some cracks," said Aidan Yao, a senior emerging market economist at AXA Investment Managers. He pointed out some cases of large real estate developers who are prone to falling prices in the face of falling demand.

Chinese officials have struggled to contain rising prices in cities like Beijing.

"It's only a matter of time before the market gets cool," Yao added.

The real estate industry is one of the few bright spots for China's economy this year, but it is turning into weight if it collapses, according to analysts at Fitch Solutions.

"This will add another layer of pressure," they write in a note to customers last month.

Chronic problems

Chinese officials have turned to tax cuts, infrastructure spending and looser monetary policy as they seek to support growth. But some experts believe that they are wrong recipes for the country's financial difficulties.
How could the trade war make China even stronger

"China's problems are chronic, not acute," said Derek Scissors, a China expert at the American Enterprise Institute, a think tank based in Washington.

In his view, major issues such as the rapidly aging population of China and the uncompetitive business environment are largely ignored.
The Chinese government has relaxed its policy for a child for decades and has tried to increase competition with plans for greater access by foreign companies to areas such as banking and cars.

But these moves come too late or do not go far enough, causing serious worries about China's long-term economic future, according to the scissors.

"Old, indebted economies do not grow," he said