Nearly everyone in China, including investors, consumers and homeowners, is adjusting to the country’s economy shifting from the high growth of previous decades to slower growth, the so-called “new normal.”
Zhong Weiyi, a 58-year-old homeowner in Chengdu, is worried that the value of his house and pension are shrinking, and whether he can support the golden years he once longed for.
At the same time, most estimates suggest that more than 20% of young people in China currently cannot find a job. These young people are gradually reducing non-essential spending and shopping more through second-hand or unused items platforms.
Zhongguancun in Beijing is known as “China’s Silicon Valley”. Guo Qingfeng is an IT employee of a large technology company here. It’s too easy to get fired now, he said.
A surplus of labor also means employers are able to squeeze employees into working long overtime hours.
Guo said friends and colleagues at the company were leaving because they were unwilling to accept the “996” schedule, which refers to working six days a week from 9 a.m. to 9 p.m. It made him worry about keeping his job.
“More and more people I know are thinking about whether they should buy things that are not absolutely necessary,” he said. “We also established a WeChat group called ‘Second Hand’ to share product links on second-hand platforms and second-hand stores.”
Foreign investors are also leaving China, which reported annual net foreign direct investment in 2023 at its lowest level since the 1990s.
Although China’s economy failed to rebound after the epidemic and continued to be sluggish, which shocked experts and laypeople alike, in fact, China’s economy had already begun a long process of slowdown.
In fact, 10 years ago, newly elected President Xi Jinping used the term “new normal” for the first time. He was referring to the fact that China’s economic growth is expected to slow down, but Xi Jinping believes that China will rebuild a healthier model.
He spoke in detail about the changes that are coming and how China needs to prepare. The comments were widely circulated by state media, indicating that this was clearly a message that the leadership wanted to reach as wide an audience as possible.
Xi Jinping said that although the economy may cool down, China’s employment quality and industrial development will be better.
He said that we must enhance confidence, adapt to the new normal based on the characteristics of China’s economic growth at this stage, and keep a cool head.
Xi Jinping’s predictions are both correct and completely wrong.
China’s economic growth is indeed slowing down. China’s economy began to gradually slow down in 2009, which occurred after but not because of the 2008 financial crisis. Thanks to the RMB 4 trillion stimulus policy, China’s economy rebounded strongly from the turmoil at that time, but then began a decade-long gradual decline.
The economic slowdown happens so slowly that it is almost imperceptible. The economic growth rate quietly dropped from 10% in 2010 to 5.95% in 2019, before the COVID-19 outbreak began. The International Monetary Fund said this month that China’s growth rate could fall to 3% next year.
However, Xi Jinping’s vision to reshape the economy, reduce reliance on exports and infrastructure projects, control the crisis in the real estate market, and shift the focus to domestic consumption has clearly encountered setbacks.
China’s economy is still focused on manufacturing. Huge amounts of stimulus funds have been invested in the country with the most excess infrastructure in the world. The real estate crisis is as severe as ever.
However, experts say that among China’s economic problems, weak domestic demand is the most obvious. Extraordinarily low consumer confidence has affected domestic demand, but Xi Jinping believes that the wallets of one billion consumers will revive the Chinese economy.
This lack of consumption not only hurts businesses and drags down the Chinese economy, it also means that China must continue to rely on surging debt and unsustainably large trade surpluses to maintain economic activity.
“Whether it’s through rising stock markets or stabilizing housing prices to boost confidence, trying to reverse the economic decline by boosting confidence is basically wishful thinking and is not enough to restore healthy economic growth,” said Beijing-based economist Michael Michael Pettis said. He advocates measures such as direct cash payments to households.
Wages have grown steadily under Xi Jinping, but consumption has never played a significant role in the domestic economy. Weak social safety nets become even more fragile. In today’s China, the cost of raising a child to the age of 18 is said to be 6.3 times per capita GDP. In comparison, the cost of raising a child in Australia and the United States is 2 times and 4 times per capita GDP respectively.
Now, the housing market is in decline, taking with it the wealth of most ordinary citizens. The real estate industry accounts for nearly 30% of China’s GDP, and 70% of domestic household wealth is concentrated in real estate.
Li Jian, 50, who runs a 3D printing company in Beijing, said, yes, when asked whether China’s economy is currently in a “new normal” of slow growth.
Li Jian said: I am old enough to witness the gradual slowdown of the economy, but everything is still going on. Now, he said, we have reached a certain tipping point where everything has come to a standstill and people can sense it.
(This article is translated from MarketWatch. MarketWatch is operated by Dow Jones, the parent company of The Wall Street Journal, but MarketWatch is independent from Dow Jones Newswires and The Wall Street Journal.)
2024-02-27 02:10:00
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