GUANGZHOU, China — China’s political leaders, under pressure to support the country’s fragile recovery, are slowly putting the economy on a new course. No longer able to rely on real estate and local debt to drive growth, they are instead investing more in manufacturing and increasing central government borrowing.
For the first time since 2005, when comparable records began to be kept in China, state-controlled banks have begun a sustained reduction in real estate lending, new data shows. Huge sums of money are being funneled to manufacturers, in fast-growing industries such as electric cars and semiconductors.
The approach carries risks. China is chronically oversupplied with factories, far more than it needs for its domestic market. A greater emphasis on manufacturing will likely lead to more exports, which could antagonize China’s trading partners. China’s additional loans also pose a challenge to the West, which is trying to encourage additional investment in some of the same industries.
The shift to manufacturing loans underscores Beijing’s reluctance to bail out its indebted real estate market. Construction and housing represent a quarter of the economy and are now suffering sharp declines in prices, sales and investment.
China’s investment drive could generate stronger growth in the coming months, partly offsetting problems in the housing sector. But higher borrowing will do little to alleviate the long-term drag on growth caused by debt accumulation.
The government believed China’s economy would recover in 2023 after the country’s leaders removed most of the “Zero Covid” restrictions that stifled the economy in 2022. But after an initial burst of activity, growth lagged in spring and summer. Vulnerabilities remain: Manufacturing activity stumbled again last month, after showing growth in August and September.
China has already built enough solar panel factories to meet the world’s needs. It has built enough automotive factories to make all the cars sold in China, Europe and the US. And by the end of 2024, China will have built as many petrochemical factories in just five years as are operating in Europe, plus Japan and South Korea.
Economists at a recent forum in Guangzhou acknowledged that the country faced challenges not seen since Mao’s death in 1976, but predicted that large investments in new manufacturing technologies would pay off.
“Today we have difficulties comparable to those in 1978, so the question now is what will be the future of innovation-driven growth?” said Zhang Yansheng, a former economic official.
By: KEITH BRADSHER
BBC-NEWS-SRC: http://www.nytsyn.com/subscribed/stories/6982696, IMPORTING DATE: 2023-11-13 19:10:07
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