China\u2019s efforts to build confidence in its slowing economy will top the agenda of this week\u2019s meeting of its ceremonial national legislature. What remains unclear is how the ruling Communist Party can navigate toward stronger, sustained growth as China\u2019s workforce is ageing, relations with Washington are fraught, and housing construction \u2013 a main driver of the economy \u2013 is in crisis.<\/p>\n
Hopes for a strong, consumer-led recovery after severe anti-virus controls ended in late 2022 have not been fulfilled. Local governments are mired in trillions of dollars of debt and direct investment by foreign companies in China fell by about 80 per cent last year.<\/p>\n
As more than 5,000 leaders from across China gather in Beijing for the year\u2019s biggest political events, the mood on the streets and in financial markets remains glum. That\u2019s in contrast to official messaging as the country marks 75 years from the People\u2019s Republic founding in 1949.<\/p>\n
\u201cWe are confident of consolidating and enhancing the recovering and growing trend of the economy,\u201d the party newspaper People\u2019s Daily wrote in a commentary Saturday. \u201cWe are fully capable of turning pressure into a driving force, accumulating and turning advantages into victorious trends and steering the advance of the great ship of the economy while braving wind and waves,\u201d it added.<\/p>\n
For videographer Wang Tao, the question is what the leadership will do about jobs. At 41, he\u2019s struggling to find work in a labour market where companies tend not to hire anyone over 35. \u201cAt first I thought it was difficult only for older people like me, but later I found out that many young people . are having a hard time finding work,\u201d Wang said.<\/p>\n
\u201cThe general employment situation is grave.\u201d The congress endorses decisions already made by top leaders, providing a platform to publicise government plans and instruct officials on what they should do back home. China\u2019s most powerful leader in decades, Xi Jinping, will preside. He has installed loyalists in top posts to strengthen the party\u2019s control over the economy and society.<\/p>\n
Xi, 70, is in his third five-year term as party general secretary and may hold that post for life. Premier Li Qiang is expected to announce an official economic growth target when the National People\u2019s Congress convenes Tuesday in Beijing\u2019s ornate Great Hall of the People. State media suggest it will be about 5 per cent, on par with last year\u2019s 5.2 per cent growth.<\/p>\n
Many economists are forecasting much slower growth of 4 per cent or less. In 2022, it dipped to 3 per cent, the second-lowest level since at least the 1970s. Li\u2019s annual work report will include plans for \u201cpromoting high-quality development and advancing Chinese modernisation,\u201d the official Xinhua News Agency reported.<\/p>\n
Many in China are hoping that will mean more government spending, said Logan Wright of the Rhodium Group, an independent research firm. \u201cEveryone will be watching for whether there is significant fiscal stimulus on offer,\u201d Wright said. But spending alone won\u2019t suffice.<\/p>\n
\u201cThe time to solve the short-term problems and prevent them from becoming long-term problems is now. So what is the plan?\u201d Wright said. The downturn in the property market followed a crackdown on excess borrowing by real estate developers. Dozens since have defaulted on their debts. The largest, Country Garden, faces liquidation proceedings. Another, China Evergrande, is being liquidated with more than USD 300 billion in debt.<\/p>\n
Plunging tax revenues from property sales are also weighing on the financial system. To encourage more property lending, the central bank has cut its five-year prime loan rate. Many cities have relaxed controls on property deals imposed earlier to cool price bubbles, and some 6,000 property projects have been green-lighted for lending.<\/p>\n
\u201cThe property market has been such a significant source of China\u2019s growth and now it has gone into reverse,\u201d Wright said, though he noted there are signs the market is stabilising. \u201cIf you look at how China is responding to this, it is indicative of a more severe slowdown than what the official data would suggest.\u201d<\/p>\n
The problems deepened with shocks from the pandemic, when anti-virus controls led some cities into weeks-long shutdowns and factories ended up with huge backlogs. Now, instead of soaring prices, China is trying to fend off a potentially debilitating cycle of deflation, or chronically falling prices.<\/p>\n
Exports, another main driver of growth, dropped in 2023 for the first time in seven years, even as the US economy defied forecasts that it would fall into recession. Despite official indications that China\u2019s years-long anti-monopoly and data security crackdowns on technology companies have ended, entrepreneurs are jittery.<\/p>\n
Many small businesses complain they cannot collect on bills owed to them, and bankruptcies have soared. Meanwhile, global companies have been shifting investments to countries like India and Vietnam to minimise risks from China-US political tensions and the party\u2019s tighter domestic controls, in some cases raiding the Chinese offices of foreign businesses.<\/p>\n
\u201cThe system is not that transparent and the lack of transparency creates a lot of uncertainty,\u201d said James Zimmerman, a lawyer and former head of the American Chamber of Commerce in Beijing. That\u2019s particularly true when it comes to issues of national security, he said, where just conducting research for due diligence can land people in jail.<\/p>\n
Xi\u2019s talks with President Joe Biden and US business leaders at a regional summit in San Francisco in September conveyed the message that \u201cChina is open for business,\u201d Zimmerman said, \u201cbut there was nothing in there in his presentation that got to specifics about what reform and what type of changes are going to happen, you know, to give people the comfort level.\u201d<\/p>\n
These challenges come at a time of transition. China\u2019s workforce has been shrinking for over a decade, putting pressure on an economy that still relies on labour-intensive industries. With housing prices falling and stocks prices limping along, even middle-class families are scrimping rather than spending.<\/p>\n
\u201cSpending power is worse than before, probably because we didn\u2019t make money during the pandemic,\u201d said Jiang Yingjie, a salesperson in Beijing. One strategy would be to shift more national wealth into workers\u2019 pockets, says Michael Pettis, a leading expert on the Chinese economy and professor at Beijing University.<\/p>\n
\u201cThe problem in China has been the same problem for the last 10 years \u2026 and that is that domestic demand driven by consumption is very weak,\u201d he said. Meanwhile, excess investment in construction is yielding diminishing returns. \u201cSo this year is really a year in which they try to figure those imbalances out. They want to raise consumption. But it\u2019s very hard to do that because that involves a major redistribution of income,\u201d Pettis said.<\/p>\n
Worries that China may try to export its way out of its troubles are already raising alarm in the US and Europe, as Chinese banks step up lending to manufacturers of electric vehicles, solar panels and many other industrial products. The issue already features highly in talks between Beijing and Washington.<\/p>\n
\u201cIf you manufacture more and more and you don\u2019t consume it, then you need trade surpluses to absorb it,\u201d Pettis said. Some Chinese localities are trying another approach, creating affordable housing programs that invest in unoccupied apartments. Such a move can counter growing inequality and free up more income for spending.<\/p>\n
\u201cI think it has to be a combination of short and longer-term measures.,\u201d said Louis Kuijs, Asia-Pacific chief economist at S&P Global. \u201cI think anything that can be done to pump momentum into the economy will be helpful.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
China\u2019s efforts to build confidence in its slowing economy will top the agenda of this week\u2019s meeting of its ceremonial\u2026<\/p>\n","protected":false},"author":28,"featured_media":33029,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[186],"tags":[10655,158,5399,10659,3202,10654,312,10660,10658,799,96,10656,10657,9694,3770,10661,2804,2755,3358],"class_list":["post-33028","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-world","tag-ageing-workforce","tag-china","tag-chinese-communist-party-ccp","tag-crackdowns","tag-debt","tag-economic-slowdown","tag-economy","tag-global-companies","tag-government-spending","tag-housing-crisis","tag-india","tag-local-governments","tag-national-peoples-congress","tag-property-market-crisis","tag-revival","tag-shifting-production","tag-tax-revenues","tag-us-china-rivalry","tag-vietnam"],"reading_time":"7 min read","_links":{"self":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts\/33028","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/users\/28"}],"replies":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/comments?post=33028"}],"version-history":[{"count":0,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/posts\/33028\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/media\/33029"}],"wp:attachment":[{"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/media?parent=33028"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/categories?post=33028"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.businessupturn.com\/usa\/wp-json\/wp\/v2\/tags?post=33028"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}