For much of the past year since China reopened to the world following the Covid-19 pandemic, a pall has hung over large swathes of the country as its economy struggles to regain momentum.
The country’s bright young minds are having a hard time landing a job; its white-collar professionals are hit by pay cuts and layoffs; its entrepreneurs struggle to finance their businesses and pay off debts; its middle-class families are seeing their wealth slashed by crumbling housing prices; and its rich race to move money out of the country.
In the months leading up to the 75th anniversary of the founding of the People’s Republic on Tuesday, the mood was encapsulated by a new buzz phrase: “the garbage time of history.” Like the final minutes of a basketball game with one team trailing so far behind that all efforts to win seem futile, some Chinese believe their country is trapped in a similarly bleak period with little hope for a turnaround.
The pessimism was a far cry from the buoyant outlook just five years ago, during the last major National Day celebrations in 2019. Back then, economists were rushing to predict when China might overtake the United States to become the world’s largest economy. Those conversations aren’t happening much anymore. These days, the talk centers on how Beijing can avoid a repeat of Japan’s “lost decade” of economic stagnation following bursting of its housing bubble in the 1990s.
Last week, after months of increasingly grim economic data, Chinese leader Xi Jinping finally gave the nod to a much-needed stimulus package in a bid to shore up faith in the world’s second largest economy.
On Tuesday, the country’s central bank unveiled a raft of measures to counter falling prices, including freeing commercial banks to lend more money and making it cheaper for households and companies to borrow.
Officials kept up the positive drumbeat the next day by announcing rare cash handouts to disadvantaged citizens and pledging subsidies for recent graduates struggling to find a job.
And on Thursday, the ruling Communist Party’s 24-member Politburo continued the bullish messaging. In a break with tradition, Xi dedicated the group’s September meeting to economic affairs.
The top officials acknowledged that “new situations and problems” have arisen in the economy and demanded urgent action, vowing to boost fiscal spending, arrest the decline of the property market and improve employment for fresh graduates and migrant workers.
According to Xu Tianchen, senior economist at the Economist Intelligence Unit, the “rare, simultaneous rollout of so many measures underscored the urgency for policymakers to prop up the economy.”
The policy blitz gave an adrenaline shot to the country’s dismal stock market days before the week-long national holiday, which starts on Tuesday. China’s blue-chips stocks soared more than 15% last week in its biggest single-week gain in nearly 16 years. Hong Kong’s Hang Seng index surged 13%, notching its best week since 1998, according to Reuters.
The frenzy continued on Monday, when the combined turnover on the Shanghai and Shenzhen bourses exceeded 1.8 trillion yuan ($228 billion), logging a record high, according to the Securities Times, a state-run financial newspaper. That’s despite a key measure of factory activity, the official purchasing managers’ index (PMI), shrinking for another month in September.
Even some big-name investors are excited by the rally. David Tepper, the billionaire founder of American hedge fund Appaloosa Management, told CNBC in an interview Thursday that he was buying more of “everything” related to China.
The stock market may be in the midst of one of its most remarkable turnarounds, but economists say reversing China’s economic downturn will require much more work.
“Stimulating the stock market doesn’t really do much for the real economy in China. Very few people invest in the stock market compared to other major markets,” said Logan Wright, director of China markets research at Rhodium Group.
Chinese households have suffered a massive loss of wealth from a slump in the housing market, amounting to an estimated $18 trillion, Barclays economists said in a research note earlier this month It’s as if each three-person household in China has lost around $60,000, an amount that is almost five times China’s per capita gross domestic product.
Wright said the stimulus package “makes the leadership look more reactive, more responsive to the downturn in the economy. And that is what’s generated some of the more positive sentiment (last) week. But nothing really changes in terms of the structural outlook.”
China’s decades-long investment-led growth has reached “a dead end,” and fundamental overhauls of its fiscal system — including a redistribution of income and greater transfers to households — are needed to rebalance the economy toward a more sustainable consumption-led growth model, Wright said.
There has been little in the barrage of measures announced last week to address the underlying structural problems weighing down economic growth.
China has long had one of the highest saving rates in the world. While one-off cash handouts and subsidies may boost short-term consumption, robust social welfare and healthcare are needed to make Chinese households feel comfortable to spend more in the long run, especially following the collapse of the property sector, where most Chinese invest their savings.
The outlook for the real estate industry, which makes up about a quarter of the Chinese economy and 70% of household wealth, remains dim.
“There’s not much Beijing can do,” Wright said. “In many ways, the adjustment in the property sector is almost complete, and policy hasn’t been very effective in stabilizing it.”
After decades of boom, China’s real estate sector is now in its fourth year of contraction since falling into a deep crisis in 2020, when the government cracked down on excessive borrowing by developers to rein in their high debt. Beijing’s efforts to rescue the market have struggled to revive demand, with prices of new homes continuing their freefall.
In a concerted push to prop up the embattled property market, the southern metropolis of Guangzhou became China’s first tier-one city to lift all restrictions on home purchases on Sunday, while Shanghai and Shenzhen also eased rules for home buyers.
The country now has so many empty apartments that not even all of its 1.4 billion people are enough to fill them. To make matters worse, the population has been shrinking for two years, a demographic shift that could further hobble future growth.
The Chinese government’s efforts to encourage births has so failed. More and more young people are delaying marriage and childbirth, if not foregoing them all together. Many feel jaded or burnt out from “involution” – a catchphrase describing the intense competition that has dominated their lives, from striving for academic excellence to building a successful career. Some are resorting to “lying flat” or “letting it rot,” a form of passive resistance against society’s pressure by doing just enough to get by.
These buzzwords sum up a growing sense of despair among China’s disenchanted youth. Some are finding the arc of their lives increasingly out of sync with the expected upward trajectory described in Xi’s “China dream,” a grand vision of “unstoppable” national rejuvenation.
Having grown up in an era of breakneck economic growth and ever-improving living standards, China’s Gen-Zs are now reckoning with the possibility that they might not do better than their parents, whose generation accepted limited freedoms in exchange for promised prosperity.
Over the past years, China’s youth have watched their personal freedoms shrink under Xi’s authoritarian rule and their job prospects dim in a flagging economy.
Xi’s crackdown on the private sector, from big tech to private tutoring, has eliminated many jobs once available to China’s fresh graduates. The youth unemployment rate soared to 18.8% in August, the highest since authorities changed the methodology last year to exclude students.
That poses a potential problem for the Communist Party, which has for decades staked its legitimacy on the country’s unprecedented growth. As the economy slows, Xi has bolstered another pillar of the regime’s legitimacy: nationalism, which he is expected to invoke to mark the country’s 75th anniversary on Tuesday.
But Alfred Wu, an associate professor at the Lee Kuan Yew School of Public Policy at the National University of Singapore, said Chinese leaders are not “planning on giving up the economic performance argument yet.”
“They want to restore confidence in the economy, but the most troublesome headache for the Communist Party is they don’t have effective solutions to the economic slowdown.”
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