BEIJING: China’s economy risks slowing faster than investors realise as President Xi Jinping’s push to cut its reliance on real estate and regulate sectors from education to technology combine with a power shortage and the pandemic.

       Bank of America Corp and Citigroup Inc are among those sounding the warning that expansion will fall short this year of the 8.2% anticipated by the consensus of economists.

       The slump could last into next year, forcing growth below 5%, they warn. Outside 2020’s 2.3%, that would be the weakest in three decades.

       Strategists at Bank of America muse that Xi may even be embracing a once-in-two decades restructuring of the economy akin to Deng Xiaoping’s modernisations of the late-1970s and Zhu Rongji’s revamping of state-enterprises and finance in the 1990s.

       “If so, the data flow from China could confound even the pessimists, and we are on guard for that scenario unfolding,” the strategists, led by Ajay Kapur, told clients in a report, in which they predicted growth of 7.7% this year and 4% in 2022.

       Beijing is determined to shift its economic model from its boom years, in which the country loaded up on debt and propelled itself to become the second-largest economy.

       Xi is now overseeing a plan to stabilise debt growth – in order to ease financial risks – curb inequality and channel financial resources into hi-tech manufacturing to counter the threat of technology restrictions from the United States.

       Data released recently already showed a sharp slowdown in growth to 4.9% in the third quarter from 7.9% in the previous quarter, with more pain likely to come as electricity shortages persist.

       Even before the pandemic hit, China was surprising economists with slower-than-expected growth caused by Beijing’s resolve to ease debt risks, which meant it avoided broad stimulus even as the US-China trade war threatened expansion.

       After modest easing to cushion the worst effects of the coronavirus, its debt-control policy resumed, with real estate companies such as China Evergrande Group feeling the biggest impact.

       Xi also set about seeking to reshape the consumer technology, private tutoring and real estate sectors, with officials arguing they represent a wasteful use of the country’s limited resources. Officials have mostly embraced the resulting slowdown.

       China’s Premier Li Keqiang in March announced a growth target of “above 6%” for the year.

       While analysts saw this as a signal that Beijing was prioritising other policy goals such as financial stability and environmental protection above economic growth, most at the time saw the target as extremely conservative.

       “I’ve joked that maybe Li Keqiang knew more than we did,” said Bert Hofman, a former director of the World Bank’s China office who now heads the National University of Singapore’s East Asian Institute.

       But Beijing has signalled in recent weeks that it could loosen some policies, telling banks to pick up the pace of mortgage lending even as it repeated vows not to use the property sector as a short-term stimulus.

       Any policy loosening in the next few months will be aimed at “preventing disaster” rather than supporting growth, Hofman said.

       “As long as growth is above 6%, I think China would feel relatively happy,” he added.

       People’s Bank of China governor Yi Gang recently said he sees about 8% expansion for this year, and to achieve that, the economy would only need to expand 3.9% in the current quarter, according to calculations from Bloomberg Economics.

       China’s slowdown comes as the global recovery from Covid-19 risks losing momentum.

       “When China’s economic engine sputters, growth fizzles the world over,” said Frederic Neumann, co-head of Asian economic research at HSBC Holdings Plc in Hong Kong.

       Among those at risk from less investment in China are commodity exporters such as Australia, South Africa and Brazil. Slower trade could also hit the likes of Malaysia, Singapore and Thailand.

       The impact could be felt further afield, according to Tuuli McCully, Singapore-based head of Asia-Pacific economics at Scotiabank.

       “Countries such as Chile and Peru ship significant amounts of commodities to China and will feel the impact of weaker real estate and other fixed-asset investment activity in China,” she said.

       Financial market spillovers may be more contained given the 18% peak to trough correction in China’s CSI 300 Index this year did not spark global contagion, said Alvin Tan, head of Asia foreign-exchange strategy at Royal Bank of Canada in Hong Kong.

       One possible upside from a cooling Chinese economy is that it could alleviate global inflation pressures, Tan said.

       “Nonetheless, the net impact is decidedly negative for a world that is still recovering from the pandemic,” Tan said.

       For now, even the most pessimistic economists expect growth to come in above 7.5% this year, a relatively rapid rate for an economy the size of China’s. — Bloomberg