Broker Huang is gloomy when she looks at her own wallet. “I get a basic salary of 3,000 yuan (375 euros) per month, but my rent is already 5,000 yuan (625 euros). How do I bridge that difference?”
Normally she lives mainly on the commission she receives when she manages to rent out an apartment, but lately she has hardly any customers left: hardly anyone moves anymore. Fortunately, her husband also works.
The Chinese economy is not doing well. Such was the growth in the second quarter only 0.8 percent compared to the previous quarter: an unusually low figure for China. The growth compared to the same period the year before was 6.3 percent, while most analysts had predicted more than 7 percent.
Last year, China was still in the middle of the corona malaise. But the hope was that after December, when China was one of the last countries in the world to let go of its strict corona policy, China would quickly recover economically.
That is becoming increasingly questionable. The real estate crisis continues, private investors are hesitant and international demand for Chinese products is also much weaker than hoped.
Consumers do not spend their savings on a large scale: in March retail spending still grew by 12.7 percent, in June that growth was only 3.1 percent. And there is a threat of deflation.
All this undermines domestic confidence in economic recovery. There is a danger that China will slide into a further downward spiral as consumers and investors lose faith in it.
The weak growth also poses a threat to the global economy. There, all hope was pinned on China: the world’s second-largest economy could pull the rest of the world up with it with a quick recovery.
Confidence of private companies
It would help if private companies in China regained more security and confidence, and if foreign companies also found China more attractive again. The private economy in China accounts for 60 percent of gross domestic product and 80 percent of urban jobs. But private entrepreneurs invested less in the second quarter than a year ago in the same period.
The Communist Party of China (CPC) and the Chinese government this week presented a plan of action to regain the trust of private companies. This includes a promise that private companies will be treated the same as state-owned companies, and that the state will consult more with entrepreneurs before introducing new policies.
With the plan, China seems to be returning to the previously taken path of harsh, sudden and disruptive government measures to regulate the market. It was even suggested here and there that private companies would no longer have a role in China.
The heavy punishment of internet companies also seems to be over now. The Internet companies not only lost much of their value as a result of these penalties and restrictions, they were also no longer able to employ young people with technical training in large numbers. Unemployment among urban youth has risen to an unprecedented high, at 21.3 percent, partly because of this.
The new plan is more of a political signal than a concrete list of measures. Above all, it should give private entrepreneurs the feeling that they are back in favor with the top of the CPC and with President Xi Jinping himself.
Little spontaneous
The reaction of the owners of a number of mega-large private companies to Xi’s plan seems hardly spontaneous. For example, the boss of Wahaha, who grew up selling water, soft drinks and snacks, said he would choose “the path of serving the country” and “not disappoint” the CPC and the state. In the photo he was wearing the red badge of the CPC.
Pony Ma, the super-rich boss of internet company Tencent, also showed his allegiance, saying he was “extremely excited” about Xi’s plan. They have learned from the disgraced internet entrepreneur Jack Ma that it is better not to contradict the government openly.
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Alibaba, the company that founded Jack Ma, was fined about 9 billion euros two weeks ago for violating rules in the field of consumer protection and corporate governance. But no one was shocked by that. It is generally believed that this is the last punishment for the company. Alibaba is expected to be able to fully participate again in China in a modified form, it is expected. This means that the reorganization of internet companies appears to be complete for the time being.
Equity markets did not react enthusiastically to the plan for the private sector: the stock market index in Hong Kong, on which many Chinese companies are listed, did not rise after the news.
The European Chamber of Commerce in China told Bloomberg that they too should see it all again first. “Meaningful change comes through implementation, not through commitments,” said the House. “European companies in China have become accustomed to wonderful statements in favor of business that are not accompanied by much concrete action.”
Some analysts believe a government stimulus plan later this year could revive the economy, but leading economist Zhang Jun of Shanghai’s Fudan University doesn’t believe so. At least he does not think that a traditional package of measures will still work today.
Other economists also point out that investments in infrastructure, for example, now yield much less returns than twenty years ago. Most of the infrastructure needed to develop China has long since been built.
‘Blind spot’
In a recent speech on a forum of NetEase, a Chinese internet company, professor Zhang stated that more money should now be given to households. “The things on which China spends its budget have hardly changed for decades. Most spending is on investment and construction, while far too little money goes to consumer and social security projects,” he says.
He talks about a “blind spot” among policymakers. “Even in the face of the impact of the pandemic, all policies have focused on supporting businesses, with little focus on households.”
He also thinks that wages should go up, pointing out that any form of collective wage bargaining is lacking in China and that wages have therefore lagged behind economic growth for far too long.
Chinese households will have saved more than ever in 2022. Many economists argue that those large amounts of savings can boost consumption again, but Zhang doesn’t believe that.
He argues that many people will hold even more reserves in the future because they lack basic security. This lack of certainty is one of the reasons many couples are hesitant to have more than one child: they don’t know if they will remain wealthy enough to raise a second child well.
Zhang believes that more money should be spent on education, health care and care for the elderly, and he is not alone. Many foreign analysts have also argued for years that Chinese consumer spending can only grow if citizens have more security for their existence.
Higher domestic consumption is one of the few opportunities for China to become less dependent on exports and a faltering global economy. It would also make China’s trade balance more balanced.
But Beijing has so far made no move to implement such reforms. China is thus stuck in an old-fashioned growth model that no longer seems to work.