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Economic Indicators
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China’s economy is facing a cyclical and policy-induced downturn

MERICS Economic Indicators Q3/2021

Following a spectacular recovery over the first half of 2021, China’s GDP growth rate dropped to 4.9 percent in the third quarter of the year. Overall growth across the first three quarters was 9.8 percent. More moderate growth was widely expected, but the sharper than expected slowdown across a broad range of key economic indicators is weighing down the GDP growth outlook for 2021. A combination of power shortages and Beijing’s efforts to control financial risk have hit economic growth. Meanwhile consumption keeps falling behind expectations, partly due to regional Covid-19 outbreaks, giving rise to economic imbalances. As the year ends, China is facing a broadening economic slowdown.

China’s government has navigated the economy through pandemic-related challenges effectively enough so far but risks over-reaching now. The policy blitz across various sectors of the economy that it launched in the second half of 2021 has raised questions about a lack of coordination within the government. Cracking down on unfavorable developments in the tech, education, and entertainment sectors while also enforcing anti-monopoly regulation, tackling financial risks and accelerating efforts to reach CO2 emission reduction goals would be challenging if tackled individually, even at the best of times. Doing them simultaneously in current circumstance may stall China’s economic engine.

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