Real estate crisis, youth unemployment, weak exports: China’s economy is under pressure. But Beijing is holding back on big bailout packages, as in the past. What’s behind it?
Haoyang tried everything. The 24-year-old has a master’s degree in marketing from a renowned Chinese university. He has also done several internships. But after more than half a year of searching, he still hasn’t found a suitable job. “No one is hiring,” says Haoyang, who is now considering simply going back to university and maybe doing a doctorate.
Many Chinese are currently feeling the same way. You sense that something is changing. The days of unbridled growth are long gone. But the pandemic, to which China reacted with stricter restrictions than any other country, has increased the economic pressure for many. Instead of getting a little wealthier every year, as the Communist Party has promised the people for not interfering politically, the belt must be tightened.
German companies feel the crisis
German companies are also feeling the effects. “Many things were subordinated to combating the pandemic and structural problems were not addressed,” said Jens Hildebrandt, executive board member of the German Chamber of Commerce (AHK) in Beijing. This is now reflected in a crisis of confidence, low growth and high youth unemployment. “By Chinese standards, the economy is at a standstill. There will be no return to the China of five or ten years ago,” says Hildebrandt.
The main concern at the moment is that Beijing does not appear to be able to get the real estate crisis under control. Many real estate developers, who have borrowed heavily in the hunt for more and more profit and have often built past what is needed, no longer know how to pay back the money they have borrowed. Evergrande alone, the country’s largest developer, has amassed debts of over $300 billion. Recently, another real estate giant, Country Garden, made the headlines because of its problems. Real estate prices are falling in many cities.
People unsettled by the crisis in the real estate market
The trend should continue for the time being. “The government has been trying for years to dissolve the risks that are dormant in the real estate sector in a controlled manner,” explains economist Max Zenglein from the China Institute Merics in Berlin: “The real estate sector is currently being shrunk to health, with painful consequences for economic growth.”
Uncertainty is spreading in many families because the value of their condominiums is falling. This is also noticeable at the cash register. Demand from Chinese consumers is so weak that retailers only know what to do with high discounts. The economy has now officially slipped into deflation.
Problems with foreign trade too
“The years of the pandemic and the government’s tough regulatory actions, for example in the tech or real estate sectors, but also the geopolitical risks have clouded the economic prospects of the population,” says Zenglein. US President Joe Biden even speaks of a “ticking time bomb” with regard to China.
Not only domestic consumption and the real estate market cause problems. Foreign trade, the third important pillar of the economy, has also collapsed. While exports fell 14.5 percent year-on-year in July, imports fell 12.4 percent. Overall, the Chinese economy recently grew by only 0.8 percent compared to the first quarter of the year.
Government is holding back on aid
Nevertheless, Beijing is reluctant to take far-reaching measures to boost growth. The Politburo is rather vague about new aid for the real estate sector and to boost consumption. In addition, the central bank has already cut interest rates twice since mid-June.
Hildebrandt from the Beijing Chamber of Commerce believes that the waiver of far-reaching measures points to tight coffers: “After many years of infrastructure support, it has been stimulated.” However, economist Zenglein also sees this as a positive development: Ultimately, it is a good decision to accept lower growth and to try to contain the risks in the financial system.
Unwelcome economic data is censored
For job seekers like Haoyang, however, this is of no use at first. More than one in five Chinese under the age of 25 was unemployed in June. How many there were in July can only be guessed at. The National Statistics Office announced that the corresponding data will no longer be published for the time being.
Beijing is not only trying to cover up the problems on the labor market as best it can. Censorship and propaganda are used to try to paint as positive a picture of the economic situation as possible. “Turning off the information tap will hardly help the disturbed climate of trust. Transparency is now more necessary than ever,” says Chamber boss Hildebrandt.
Source: Stern
