When their government abruptly ended harsh Covid measures in December, many Chinese expected a strong rebound from pent-up demand. Eight months later, China is instead facing a backlog of bad news: record youth unemployment, a severe plunge in housing, stagnant spending, and even deflation.
This is a shock to many Chinese who are used to an economy that has kept expanding and living standards that have risen with it. Now they are dealing with slowing business and shrinking personal fortunes.
I’ve spoken to more than a dozen business owners and consumers, as I have for years, and I can report: Their confidence in the future of the economy and the country is rock bottom. If they hoped for a rebound, that hope has died out. They worry that it is the beginning of something they dare not imagine and fear that the government has no solutions. The bad news keeps coming.
“The scariest thing is that everyone around me is at a loss as to what to do next,” said Richard Lee, owner of an auto parts wholesale business. “I thought our country would get better and better.”
In the first half of 2023, revenues from Mr. Lee’s business are down 15 percent from a year ago, when the city where he lives — along with more than 10 million other people — was locked down for weeks.
He discovered that other companies like his were also struggling. Some of his clients, auto repair shops, even closed their doors because car owners were underspending.
Mr. Lee had four stores and closed two of them. He let go of two-thirds of his staff and stopped investing in new products. He also cut back on eating out and hanging out with his buddies. Because he is short on cash, he tried to sell an apartment he bought in 2020 as an investment. But there were few inquiries, even after he lowered the price to $400,000 from $500,000.
It is becoming increasingly difficult for people like Mr. Li to rely on the Chinese government to know what is happening in the economy. The data released has been held back for years. Last week, I stopped sharing the youth unemployment rate after the data hit a high of 21.3% in June.
But the batch of official data the government was willing to share about July was bad enough.
Consumer prices in China fell last month for the first time in more than two years. Chinese banks extended $47.5 billion Of new renminbi loans, 89 percent fell from June – half the amount in the previous year. Home sales by snapshots He falls 6.5 percent in the first seven months of the year, after contracting by about a quarter last year. In a country where three-fifths of a family’s assets are tied up in real estate, this decline is alarming.
Concern is so high that people are using a social networking site called Xiaohongshu to post talismans that they think can help them sell homes.
China slid into recession after the government’s strict “zero Covid” policy drastically suppressed consumption and business activity last year. Chenggang XuAnd An economist at Stanford University, explained why deflation can be harmful.
“The best case scenario is that everyone expects prices to continue to fall, so they will continue to wait for further price declines,” he said. “The worst case scenario is that people are very afraid and very anxious.” He said that fear for their jobs or the survival of their business will prompt them to save more and spend less, which will push the economy to further contraction.
With the level of anxiety rising, people are actually saving more and spending less.
Cobb Liu, founder of an education startup in a large city in southwest China, said his revenue has been flat this year, which is bad for a company that has been growing at 40 percent annually. Mr. Liu, in his mid-30s, has about $1.5 million in cash, but is determined to keep his monthly spending at about $800, half of which goes to rent. He will keep his five-year-old Toyota Corolla and won’t be buying real estate anytime soon. He bought apartments in two complexes in 2019 and the developers of both stopped building after they ran out of money. It’s a nightmare that hundreds of thousands, if not millions, of Chinese have been going through since the housing boom abruptly ended.
Mr. Liu believes that the decline in the Chinese economy could continue for years. He sold all of his positions in mainland China shares earlier this year and said he would not touch the shares of any Chinese company, even if they traded in New York or Hong Kong.
Boris Day, 44, is a commercial real estate consultant in Beijing who earned less than $15,000 in the first six months of this year. This is half of what he made during the pandemic and less than 15 percent of his previous earnings. His other source of income – an office he rents – evaporated after the tenant stopped working six months ago.
“I can just lie on the floor,” Mr. Day said, using a phrase describing taking a break from hard work. “I have no expectations for the future.” He converted his SUV into a sleeping car so he and his wife could save on hotels when traveling.
Even entrepreneurs who are doing well are reluctant to take out loans because of their uncertain prospects.
Mark Fu, founder of a financial advisory firm with offices in Chengdu and Hong Kong, said his business is booming this year. He explained that many wealthy Chinese people realized during the pandemic that money could not buy them safety or dignity, and sought his help in moving their financial assets out of China. Banks have offered him business loans at low interest rates, but he is reluctant to take on debt. Instead of expanding, he reduced his staff to 10 from 12 to diminishing.
He said he was dismayed by government crackdowns on industry after industry during the pandemic. He said he believed if he worked hard he would succeed. Now he fears that the way he runs his business is not the most important.
“Is the government going to wipe you all out at once?” He asked, “Or make you make some money?” He also has an apartment, which he cannot sell.
The mood on social media became so bleak that A.J comment Securities Daily, an official publication, called for publications speculating about trouble ahead to be scrapped. Rumor-mongering led to market volatility, the article said, citing headlines such as “Lehman Brothers’ Chinese version is coming!” and “a brokerage firm for a conference call in its ‘darkest hour’.”
People despair because they cannot imagine how China can get out of its downward spiral. They believe the root of the problems lies in the ideology of Xi Jinping, China’s supreme leader, who appears to hate the private sector and has dismantled the elements of the market economy that have made China an economic success.
At the age of 35, Andy Wang quit his job at a bank earlier this year to prepare for applying to graduate school in Australia. It was postponed last fall when the list of new party leaders, all of whom are protégés of Mr. Xi, was announced. “The corrective capacity of this country was lost after that,” he said.
His parents are wealthy, but he is pessimistic that he will have the same opportunities they once enjoyed. He said, “I don’t see any way to make money in this country.” “I’m not even sure if I can maintain my current standard of living. I could only strive to survive.”