While touring the southern Chinese city of Shenzhen last week, Premier Li Keqiang tried to send out positive energy at a time when many citizens are complaining of economic hardship.
“The opening up of China will continue. The Yellow River and the Yangtze River will not ebb,” Li said, striking an optimistic tone as he visited the port of Yantian, a gateway to Europe and North America, two of the biggest markets. from China.
“The waters of Yantian Port will also flow ceaselessly, and will not only continue to maintain your benefits, but also expand your benefits,” Li added. Covid rules closed the port, delaying Christmas deliveries. This spring, similar restrictions forced ships to line up to enter.
Since the beginning of this year, China’s insistence on a zero Covid policy has caused much inconvenience and uncertainty for its people and the struggling economy, raising serious concerns inside the country about the following.
“The real estate sector is struggling, investment is all down, and people are saving rather than spending,” says Hong Hao, a prominent market analyst whose social media account was censored this year after pessimistic remarks on the economic outlook.
Hong highlights three big headaches for policymakers in Beijing: Covid, ownership and troubling relations with major Western countries. “But there really are obstacles everywhere, and it’s hard to discern which one is bigger.”
These stumbling blocks will almost certainly cause China to miss its own economic growth target of “about 5.5%” this year, which Li set in March. In another worrying development, the unemployment rate for 16-24 year olds in July hit a record 19.9%, 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, suggesting instead that the country should “stabilize employment and prices, maintain economic operations within a reasonable range and strive to achieve the best level of GDP possible”. results”.
The concerns expressed inside China are palpable, but there is also consensus that unless its growth model is reformed, the economy will soon run out of steam. But any change – for example via Beijing’s tough policies for the real estate sector announced in 2020 – would cause major disruption, at least in the short or short term. In other words, Beijing faces a real political dilemma.
“The two fundamental issues for China are a natural slowdown in growth and improving its regulatory environment,” said Nancy Qian, professor of economics at Northwestern University in Chicago. “Both are standard growing pains as the economy transitions from low income to upper middle income.”
Qian says China’s growth is slowing and will plateau because 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 businesses aren’t making more money? And many companies, like real estate companies and today’s struggling construction industry, have done much worse than we thought.
Poor economic performance may be inevitable, but it has real social – and potentially political – consequences. This is particularly the case of a system without the safety valve of elections.
Last month, it emerged that hundreds of homebuyers across the country were banding together to refuse mortgage payments on homes left unfinished by developers. On social media, angry shoppers discussed ways to get the government’s attention to pressure “greedy and dishonest developers”.
Sensing a social crisis looming, Beijing quickly devised measures to ease tensions and help the real estate sector – which accounts for 25% of the Chinese economy. Some local officials have generated new ideas, such as encouraging party members to lead the buying spree.
“I hope that today all comrades will take the initiative to buy property,” Deng Bibo, county party secretary of Hunan province, urged in a viral video this week. “Buy one property, then buy a second. If you’ve already bought a second, buy a third. Bought a third? Then buy your fourth.
Qian says the real estate crisis is an example of how difficult it is to mature the regulatory system for a rapidly growing economy. China’s watchdogs and policymakers have known for some time that big real estate companies such as Evergrande borrow heavily. It worked as long as the economy was growing. But at some point, the music stops.
Today, 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 consumer confidence. »
China’s domestic problems also have an international dimension. What was once “the factory of the world” is now embroiled in geopolitical battles with many Western markets. Last month, Tony Danker, chief executive of the Confederation of British Industry, said UK businesses were already rethinking their operations in anticipation of the UK’s decoupling from China.
But, perhaps the biggest elephant in the Chinese economy room today is politics, analysts say. In one of Li’s videos during his Shenzhen tour, he was heard comparing China’s reform and opening up to “drawing a trail of blood”. But soon after it was uploaded to Chinese social media, users started reporting that they were no longer able to see it.
“After user complaints and following platform review, this video addressed political and current affairs content that was not qualified for publication,” the error message reads.