BEIJING — Nomura’s Chief China Economist Ting Lu cut his forecast for Chinese GDP growth this year as factories shut down to comply with carbon emissions reduction targets.

Lu stated in a Friday memo that the market is so overwhelmed by the impact of the falling property sector, that it may overlook Beijing’s unimaginable curbs on energy usage and intensity.

He expects China’s GDP growth to be 7.7% in 2018, down from 8.2% forecast.

Chinese President Xi Jinping announced in September 2020 that China would reach peak carbon emissions by 2030 and become carbon neutral by 2060. That’s kicked off national and local plans to reduce production of coal and other carbon-heavy processes.

Meanwhile, worries about indebted Chinese property giant Evergrande’s ability to stay afloat has roiled global markets in the last week. The real estate market, along with related industries such as construction, accounts for more than a quarter of China’s GDP, according to Moody’s estimates published in a late July report.

Fitch lowered its China growth projection to 8.1%, down from 8.4%. This was due to concerns that domestic demand will be affected by a slowdown of the real estate market.

While other economists aren’t yet lowering their China growth forecasts for 2021, they are observing a growing number of obstacles to growth.

• Larry Hu, Macquarie’s Chief China economist, stated in Monday’s email that his estimate of 8.5% GDP, which he had set one year ago, now faces “downside risk” due to property slowdowns and reduced production.
• Bruce Pang of China Renaissance, the head of macro- and strategy research said Monday that Macquarie has not yet revised its 8.4% GDP forecast. He said that there might be an 8.25% to 8.3% revision if the power shortage continues, which could impact not only energy-intensive manufacturing but also local livelihoods and services.
• Allianz subsidiary Euler Hermes’ senior economist Francoise Huang said in an interview Thursday she is maintaining her GDP forecast of 8.2% for now, until she can get more clarity on “how much of [a] downward revision” she needs to make.

The central government in March set a much lower GDP target of over 6% expansion for the year. Analysts have noted policymakers are far more interested in the quality of economic growth than its pace.

Nomura’s Lu reported Friday that “we believe it unrealistic to expect China maintain high- and stable growth as Beijing provides substantial shocks to both demand and supply sides.”

On the supply side, he pointed to a “game changer” in mid-August when the national economic planning agency announced that 20 regions — accounting for about 70% of China’s GDP — failed to meet carbon-related targets, prompting local authorities to quickly take action.

“Regarding demand shocks,” Lu said, “China’s recent, sweeping regulatory crackdown on internet platforms, fintech, video games, off-campus tutoring, ride-hailing, data privacy, food delivery, crypto miners and e-cigarettes have been significant. The crackdown on off-campus tutoring may be especially negative for growth in Q3 and Q4 this year, as the entire sector has been decimated”

He lowered quarterly GDP forecasts to 4.7% year-on-year growth in the third quarter and 3% in the fourth.

China is expected to release third-quarter GDP figures on October 18. The reliability of official data is sometimes questioned.

Chinese authorities’ efforts to reduce high reliance on debt in the massive real estate sector in the last year have sent shares of indebted developer China Evergrande tumbling. The company has remained silent on an $83 million interest payment on its U.S. dollar-denominated debt that was due Thursday. The company has a grace period of 30 days.

Morgan Stanley’s Chief Asia economist Chetan Ahya warned that Evergrande’s difficulties could lead to a 10 percent drop in residential property activity. That would cause GDP growth to fall by about 1 percentage points. The note was based on analysis done by Robin Xing (chief China economist).

Ahya said that the slowdown may lead to a decrease in private consumption, a fall in property investments and lower fixed assets investment in similar manufacturing sectors. Ahya stated that these spillovers are placing downward pressure on the growth, while production cuts are impacting growth to meet energy intensity targets. Because of the Covid-related restrictions, “The regulatory reset is impacting corporate sentiment. Consumption is softening due to intermittent Covid related restrictions.”

Morgan Stanley analysts predict that fourth quarter GDP growth will slow by around 1 percentage point if energy-intensive production is not removed. According to Morgan Stanley, the investment bank expects a 4.5% increase in GDP in the third quarter compared with a year ago and a slower 4% rate in the fourth quarter.