China has been in the news for a while. First for the regulatory conditions that were imposed on large technology companies, which was quickly followed by the Evergrande issue that reflected on the underlying problems of the property sector.
CNBC-TV18 learns that coal shortages and power outages are resulting in factories getting shut down and much of this is probably because China is in a hurry to meet emission norms. All this has left the world worrying if China is slowing down seriously.
In an interview with Latha Venkatesh, Becky Liu, Head of China Macro Strategy at Standard Chartered Bank said the power shortage issue is likely to last for few more weeks but is unlikely to have a significant impact on China's overall growth.
"The power shortage issue, we believe, will last for another few weeks at least. At this point, we have already seen even the top authorities making efforts to address the issue. Therefore, we don't believe that a serious outage is going to last for a very long time. However, what is risky is that winter is approaching and we have already started to see even household power usage getting affected over the last few days in the northern part of China. So we do expect a bit more disruption to China's industrial production activities in the coming few months,” Liu said.
Liu explained that these types of production curbs, especially in the heavy industries that consume more energy and more electricity, are likely to remain for a slightly longer period than expected. However, this round of power shortage related to production cuts is unlikely to have an equal amount of downward economic pressure like what was seen over the last 2-3 months due to COVID containment measures, she said.
“So we do expect a little bit of further slowdown in production activities but some of the other segments might be making that up when it comes to China's overall growth," she said.
Speaking about the Evergrande debt crisis, she said it is not China's Lehman moment and will not have a systemic risk.
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"A couple of weeks ago there was a lot of chatter in the market talking about Evergrande as China's Lehman moment. In our view, our base case scenario is that this is not China's Lehman moment and we do not believe there will be a systemic risk associated with Evergrande's potential fallout. We see the Evergrande's situation as a local case with very limited spill over to the international and global market at this stage. Even for China's domestic market itself, we are not going to see a huge contagion effect from an immediate market fallout or that kind of scenario," Liu said.
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