The World Bank again lowered its forecast for China’s economic growth this year and next year in the latest China economic update. Domestic companies laid off staff, while foreign companies suspended investment. So is China’s economy still on a roller coaster?

Two reports from the world bank show China’s real GDP growth. It’s expected to slow to 2.7% in 2022 from 8.1% in 2021 despite the policy support. 

According to the World Bank, the country’s economic growth outlook is also subject to significant risks. As the pandemic recurs, strict pandemic restrictions may be reinstated. In addition, persistent real estate stress could have broader macroeconomic and financial spillovers.

Xiaomi’s recent move caught the public’s attention. According to CNN, the company made significant cuts this year. Xiaomi reduced its workforce by nearly 1,900 in the first nine months of 2022. COVID restrictions reduced the company’s revenue by 10% because of weakening global demand for electronic products.

In addition, based on CNN’s calculations, Tencent fired approximately 4,000 workers in the first nine months of this year, and Alibaba cut more than 15,000 jobs in the same time frame.

Multinational companies hold back investment and foreign investors flee China

It’s not only Chinese companies that are affected by the pandemic. Multinational companies involved with China’s supply chain also feel the pain. Therefore, they hold off on new investments.

Data provider Willis Towers Watson conducted a political survey, saying that 95% of multinational corporations are concerned about China compared to 62% in 2020. 

According to Reuters, Tesla may announce plans to build a new Gigafactory in Mexico. The investment is between $800 million and $1 billion. However, a source said the total investment could reach $10 billion. 

Moreover, Reuters said that building factories elsewhere offers a hedge in case foreign firms quit China. It’s a simple approach to relocating without having to establish a supply chain from scratch.

Nikkie Asia reported that global investors dumped $9.45 billion worth of Chinese stocks in September and October. The stock sell-off kept pace in November. 

Derek Scissors, a senior fellow at American Enterprise Institute (AEI) think-tank, said, “A weakening economy. COVID-related lockdowns. Reciprocal trade sanctions. Possible conflict over Taiwan. There are many reasons for companies to curb China operations,”

According to the South China Morning Post (SCMP), funds sold $30 billion in Chinese stocks worldwide last year. In addition, SCMP cited Goldman Sachs research that investors may remove another $100 billion to $200 billion in bad scenarios.

Manpower shortage

Foreign companies suffer from COVID prevention policies, rising labor costs, and U.S. tariffs. 

Timed News reported the story of a Taiwanese businessman named Lin. He works for European and American brands and sets up factories in China.

Lin said that after the Chinese Communist Party loosened its epidemic prevention policy, the number of confirmed cases skyrocketed. It resulted in manpower shortages and delays in the factory.

Due to the impact of global inflation, Lin’s factory orders have decreased, and more costs are incurred for warehousing.

The outside world is pessimistic about China’s economic growth this year

Bloomberg cited information from China Beige Book International (CBBI)

First, China’s economy suffered more in July due to a rise in COVID outbreaks. 

This information demonstrates that optimism for a resurgence is misplaced. 

Besides, Leland Miller, chief executive officer of CBBI, said,  “Beware the July rebound narrative. Markets are convinced that easing lockdowns mean the worst is over, but July data show that firms are still largely refusing to invest, borrow and especially now, hire.” He added the companies’ distrust of COVID’s disappearance as a reason. 
Timed News cited Shehzad Qazi, executive director of China Beige Book International. According to Shehzad, China’s economy will continue to deteriorate before it improves.

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