Touring the southern Chinese city of Shenzhen last week, Premier Li Keqiang tried to send some positive energy at a time when many citizens were complaining of economic hardship.
“China’s opening up will continue. The Yellow River and the Yangtze will not flow back,” Li said, adopting an optimistic tone as he visited the port of Yantian, a gateway to Europe and North America, two of China’s biggest markets.
“The water of Yantian Port will also flow uninterruptedly, not only continuing to maintain but also expanding your benefits,” Li added. But over the past year, traffic has been far from incessant: Covid rules are closing the port and delaying deliveries over Christmas. This spring, similar restrictions forced ships to queue for entry.
Since the beginning of this year, China’s insistence on a zero-Covid policy has caused much inconvenience and uncertainty for its people and struggling economy, prompting widespread concern in the country about what comes next.
“The real estate sector is ailing, all investments are declining and people are saving instead of spending,” said Hong Hao, a well-known market analyst whose social media account was censored this year after expressing pessimism about the economic outlook.
Hong highlights three major headaches for Beijing policymakers: Covid, property and troubling ties with key Western countries. “But obstacles are really everywhere, and it’s hard to see which one is the biggest.”
Those stumbling blocks will almost certainly result in China missing its own economic growth target of “around 5.5%” this year, which Li set in March. In another worrying development, the unemployment rate among 16-24 year olds hit a record 19.9% in July, according to the National Bureau of Statistics.
So much so that a recent Politburo meeting chaired by President Xi Jinping omitted any mention of a GDP target, instead proposing that the country should “stabilize employment and prices, keep economic activity at reasonable levels and strive to achieve the best it can.” Results”.
The concerns voiced in China are palpable, although there is also consensus that unless the growth model is reformed, the economy will soon run out of steam. But any change – for example through Beijing’s tough policy on the real estate sector announced in 2020 – would cause significant disruption, at least in the short to short term. In other words, Beijing faces a real political dilemma.
“The two fundamental problems facing China are a natural slowdown in growth and improving its regulatory environment,” said Nancy Qian, an economics professor at Northwestern University in Chicago. “Both are normal growing pains as the economy grows from low-income to upper middle-income.”
Qian says China’s growth is slowing and will plateau as it has reached the limits set by its fundamentals. “You cannot reduce unemployment without creating new jobs. But how can there be new jobs if existing companies are not making more money? And a lot of the companies that are struggling today, like real estate and construction, have done a lot worse than we thought.”
Poor economic performance may be inevitable, but it has real social – and possibly political – consequences. This is especially true for a system with no safety valve options.
Last month, it emerged that hundreds of homebuyers across the country were flocking to refuse to pay mortgages on homes unfinished by developers. Angry buyers took to social media to discuss ways to draw government attention to pressure “greedy and dishonest developers.”
Sensing a social crisis brewing, Beijing quickly took action to ease tensions and support the real estate sector – which accounts for 25% of China’s economy. Some local officials came up with novel ideas, such as encouraging party members to lead the spending spree.
“I hope that today all comrades will take the lead in buying real estate,” urged Deng Bibo, county party secretary in Hunan Province, in a viral video this week. “Buy one property, then buy a second. If you already bought a second one, buy a third one. third party bought? Then buy your fourth.”
Deng Bibo, county party secretary of China’s Hunan Province, during his opening speech at a real estate fair in Shimen, Hunan County, encouraged everyone to buy multiple houses.
According to Qian, the housing crisis is an example of the difficulty in maturing the regulatory system for a fast-growing economy. Chinese watchdogs and policymakers have known for some time that big real estate companies like Evergrande are borrowing heavily. It worked as long as the economy grew. But at some point the music stops.
Now China is stuck in a vicious circle. “The faster the slowdown, the bigger the problem,” says Qian. “The less confidence consumers have in the economy, the less willing they are to continue paying for incomplete housing, and the bigger the problem. The faster the slowdown, the less confidence consumers have.”
China’s domestic problems also have an international dimension. What was once “the factory of the world” is now locked in geopolitical battles with many Western markets. Last month Tony Danker, director-general of the Confederation of British Industry, said British companies were already rethinking their operations in anticipation of Britain’s decoupling from China.
But perhaps the biggest elephant in the room in China’s economy today is politics, analysts say. In one of Li’s videos during his Shenzhen tour, he compared China’s reform and opening-up to “leaving a trail of blood.” But soon after it was uploaded to Chinese social media, users started reporting that they couldn’t see it anymore.
“Following user complaints and platform audit, this video touched on political and current affairs content that did not qualify for publication,” the error message read.
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