Li xiaofei/Li xiaofei - Imaginechina Save for later Print Download Share LinkedIn Twitter China is dragging the global business cycle lower, and investors have identified it as the second-largest tail risk after inflation. The question is, how concerned should oil markets be? The fallout from China's property sector issues has dovetailed with energy shortages whose effects have seeped through to the country's economic fabric. China’s manufacturing PMI was 49.2 in October, a dip below 50 that suggests contraction. The high commodity prices and subsequent power rationing implemented by Beijing have clobbered Chinese industry and resulted in a sharp increase of producer prices. As inflationary pressure continues to build, the odds that this expected slowdown is turning into full-fledged stagflation — an unwieldy combination of higher prices and subdued economic growth — are increasing. The collapse of Chinese property development giant Evergrande has been the main trigger. The Chinese construction and property sector accounts for nearly 30% of the country’s GDP, and a large share of energy demand. The state’s current crackdown on property developers thus appears as a significant headwind to China’s growth in the fourth quarter and into 2022. The IMF has downgraded China growth to 5.6% for 2022, down 0.4 percentage points from its January 2021 estimate. This is the lowest level since 1990. Meanwhile, the stark slowdown is reminiscent of 2018, when a similar weakness in China’s economy spread to global markets. Investors are concerned that China's refusal to stimulate or ease its domestic economy at this point may start feeding into the wider market.
