Staff Writer: Julian Cassady
For the first time ever, China delayed the release of its quarterly gross domestic product report.
Financial analysts and politicians are questioning if China is intentionally lying about its economic performance to maintain its image as a powerful nation.
For decades China has surged in economic growth, consistently rivaling the U.S. economy.
However, after the recent release of their quarterly GDP, the data shows things are slowing down for China.
Gross Domestic Product (GDP) according to investopedia.com is, “the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of a given country’s economic health.”
This past quarter, China’s GDP grew 3.9% year-over-year. This may seem positive, given that GDP still rose overall, however, this is the lowest quarterly growth the nation has seen in nearly 40 years. China’s poor GDP performance is due to its weak domestic property market, imports, and retail sales.
Investors believe that this slowed growth could be an indication that China’s economy is starting to falter.
Many factors have led to this downtrend in GDP growth for China.
It comes as no surprise that China’s COVID crackdown is throwing a major wrench in the gears of its economy.
China’s zero-COVID policy is preventing workers from entering or even leaving their places of work depending on the introduction of company-wide lockdowns.
Chinese consumers are unable to consistently shop at their favorite brick-and-mortar stores, which causes a domino effect as these businesses cut hours due to decreased foot traffic.
The negative feedback loop perpetuated by China’s strict stance on COVID is a significant reason why they fell short of expectations this quarter.
Retail sales in China rose by 2.5% for the month, however, the expectation was a 3.3% rise, indicating that consumer demand is in a slump and people are trying to spend less.
Along with the decline in retail sales, the real estate market continued shrinking for its 5th straight quarter.
Many macroeconomic forces also affected China’s GDP this quarter.
The ongoing global recession and global inflation are two of the largest contributors to China’s reduced GDP.
China’s authoritarian regime is another cause of its economic disruption. Nations around the world have begun to distance themselves from trade and reliance on Chinese goods.
This comes after President Xi essentially elected himself for another term as President. After being elected, Xi proclaimed that he would use the power of the Chinese Communist Party to influence the economy.
President Xi also repeatedly mentioned in a speech that he would focus on national security over the performance of the nation’s economy.
On October 25th Hong Kong stocks had their worst performing day since the global financial crisis of 2008.
Many Chinese ADR stocks took a big hit this past week. Stocks for companies like Alibaba, JD.com, Tencent, and Huya all significantly dropped as investors pulled out of the market to keep cash on hand.
This sudden drop was unexpected because many Chinese investors face immense pressure from the government not to sell during economic turmoil.
Here is Alibaba’s ($BABA) performance in the past week:
Alibaba stock has dropped more than 15% since last Wednesday the 19th.
Inversely, U.S. stocks have been in a bullish (a belief that markets will rise) rally throughout the same time period.
The S&P 500 index had risen from a low of $364.50 on October 21st to a high of nearly $385 per share by the end of that day on October 25th.
Investors all over the world are struggling to wrap their heads around these volatile financial market conditions.
All eyes are on China as the nation moves forward to address these economic changes.