Bloomberg Audio Studios, podcasts, radio news China's economy is in a slowdown. To get a better picture of how the slowing economy is affecting people on the ground, Bloomberg talked to people across a range of incomes and industries.
People with their own companies, entrepreneurs, people working in the financial sector, but also people working as window cleaners, people supplementing their income as d D drivers.
Rebecca Chung Wilkins is Bloomberg's correspondent for the Economy and Government team in Hong Kong. None of the people Bloomberg spoke to wanted us to record their voices for fear of repercussions in China, but by and large, people did tell us that they aren't feeling as well off as they did five years ago. One of them is mister Kwang, who asked us to use just his last name.
He is an entrepreneur, so he's a commodity trader in his forties, and a few years ago he started his own company, running his own outfit.
Essentially in the pre COVID years, Huang was pretty successful and had a cushy life.
He bought an apartment in this very trendy district of Shenjen. He also bought himself and treated himself to a Tesla Model X.
But things have really changed for him in the last few years. Huang says business has never been tougher.
So his business essentially predicated on buying energy from generators and selling this to small factories. And what he told us is that he finds that these factories aren't wanting to lock in chower contracts that as long as they previously would, and it's essentially because they're just not sure that there is going to be continued strong demand for their products.
All that meant Huang has had to make some hard decisions about his own business.
Ultimately, he's ended up sacking five employees in his life firm because he has this worsening outlook over the market for twenty twenty four and he talks about having last year to become a sort of so called run fan nane.
Okay, wait, wait, so you have to explain what is run funan.
So ruan fan nan is this expression that literally translates as something like a sort of soft rice man. But this idea of being a soft man and not being able to provide for your family, and it's really a joke about the fact that he had to rely on his wife's income to take care as his family last year.
What Huang is experiencing is a new reality for many Chinese citizens.
Mister Huang also tells us that he's far from alone in this situation. He talks about how a lot of the private business owners that he knows are trapped in this debt cycle, so they're borrowing new loans to pay old ones, and even those who were, for example, considering having more kids have had to cancel those plans because they can't afford to grow their family right now.
Rebecca says, the negative sentiments the downturn is stirring up could be a real problem for the ruling Communist Party, and that's because for decades the party has held power through a kind of bargain with the Chinese people.
So one way to think about this bargain or this relationship is as a kind of social contract. Essentially, people accept fewer freedoms in exchange for a promise of a better life. So Chinese people don't necessarily have an active say in how they're being governed. They don't get to vote in elections, but what they do get for the
last several decades is a rapid increase in their prosperity. Now, some political scientists debate whether you can really call this a social contract because ordinary Chinese people don't have a say in that exchange. But there is still this broader question, which is what happens when that promise of prosperity, when that bargain starts to falter. And now we see that it isn't necessarily breaking down entirely, but we are starting to see these signs that the bargain is beginning to fray.
Welcome to The Big Take Asia from Bloomberg News. I'm wanh. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons, and businesses that drive this ever shifting region. Today on the show, China's economic miracle is ending. So how does President shi Jinping keep up the bargain that the communist parties had with its people for decades? So there are a number of reasons why people in China aren't feeling great about
the economy right now. The most looming setback is the property sector.
So the bulk of household wealth in China is actually held in real estate. About seventy percent of family assets are tied up in property, and for more than decade there was too much property speculation, too much building, and too much debt. And the consequence ultimately of this whole housing boom was that China was left with a huge
amount of overcapacity in the real estate sector. Bluebug Economics estimates that at the start of the twenty twenties, China was building about thirty percent more property than it actually needed each year.
At the end of twenty twenty one, one of China's biggest developers, ever Grant, defaulted on its bonds. Basically, they were unable to pay their debt to investors. Their default was followed by more than three dozen firms that also struggled to manage their debt loads. Rebecca says the collapse in the property market has people feeling pessimistic about making other kinds of investments.
So Chinese people have gone from thinking I've got this asset which is hugely valuable and accruing more value each year I'm rich to now thinking I've got this asset which I thought was really valuable, but maybe it isn't, and I just don't feel quite as rich as I did a few years ago.
Another reason why some Chinese people aren't feeling quite as rich as wage cuts. The Common Prosperity Agenda, one of Schijenping's signature policies, brought crackdowns on multiple industries, technology, property, education, and even gaming, and that of course led to massive job and wage cuts. It aimed to close the wealth gap and lift the country's poorest. Here's what Bloomberg's chief economist Tom Orlick has to say on the policy.
What's the motivation for the Common Prosperity Agenda. Well, I think it's partly that China had a big problem with inequality. The rich were getting really, really rich, but a bunch of people were being left behind. So Common Prosperity is partly about addressing that problem. It's also about how to deal with a slower growing economy. When the economy is growing eight, nine, ten percent, everyone's getting richer, everyone's feeling happy,
everyone's supportive of Communist Party rule. When the economy is just growing four or five percent, well, you need to pay a bit more attention to how that four or five percent is getting shared out to make sure everyone's getting a little bit of the pie now.
To be clear, the official data show average incomes are still rising, more slowly, but still rising, but other indicators suggest that things might be less positive.
We look at business surveys. They show factories and offices thinking more about shedding workers than adding workers. We look at a survey from the Central Bank, which suggests that households are getting more and more pessimistic about their future earnings. So we don't have perfect clarity on what's happening in China's labor market or what's happening with China's wages, but the data we do have suggests a minimum wage grate is slowing, and perhaps there are some more serious problems there.
All that leads to a shrinking of household spending. People aren't buying new houses or having kids.
So, just like mister Huang mentioned when he talked to us, some of his friends no longer want to have children, or they're delaying plans to have children because they just don't feel like they can afford to. And this is a bigger problem that people don't necessarily want to have babies if they're worried about being able to afford a bigger apartment to house another child. As well as account
for all the extra cost things like education, medical care. Essentially, it's this concern that they're worried about whether or not they have enough money and just how much is going to cost to have a bigger family.
So, Rebecca, at the beginning of the show, we mentioned the bargain between China's rule and Communist Party and the Chinese people. Right, you give his control, we make you prosperous now, and his current leadership is facing an ongoing real estate crisis. You've got slowing growth and income and a low fertility rate, among other things. On top of that, many Chinese may not be as hopeful about their futures right now. Is China's social contract being renegotiated here?
So the way we frame this question in our story is in terms of Ronald Reagan's famous question to US voters back in nineteen eighty, which is, are you better off than you were four years ago? And of course, back in nineteen eighty, for many American voters, the resounding answer to that question was no, I'm worse off, which is why Jimmy Carter lost the election and Ronald Reagan
entered the White House. Now, China doesn't have elections, but it does have politics, and one of the reasons why politics in China has been so stable is because the Chinese Communist Party for much of the past for decades, have been able to deliver this really stellar increase in prosperity.
So if you ask Chinese people, are you better off than new we are five years ago, which is the length of China's presidential term, at almost any point over the past forty years, the answer would most likely have been yes, I'm much better off than I was. But under Jinping the answer is quite a bit more complicated.
So while average households are still seeing their incomes rising, they are rising at a much slower pace than they were, and anyone who put their nest egg in say Chinese real estate or equities, will have taken a pretty significant hit. So Chinese households aren't necessarily feeling richer than they did, and in fact, many of them might be feeling poorer.
There was one moment where that prosperity evaporated at the end of the nineteen eighties, where inflation and unemployment shut up. That was when we saw a genuine challenge to the authority of the Communist Party. That culminated in the bloody crackdown at Tieneman Square. So, Rebecca, where are we now?
Well, we're certainly not in anything like as dire a situation as the end of the nineteen eighties. Back then we saw real incomes we actually falling, for example. But even so we are seeing this shift from a long period of rapid rises in prosperity to a much more complicated situation where incomes are growing more slowly, wealth is falling.
And all of that does mean there is a change in the social contract or a change in the relationship between the Chinese Communist Party and the Chinese people.
After the break, how President Sheijinping is managing the fraying of the social contract. The sound you're hearing is from the white Paper movement in twenty twenty two. That's when protesters held up blank sheets of paper to oppose COVID controls in Shanghai, and it eventually brought a rapid end to the lockdown that lasted two months. Since then, there has been striking developments in demonstrations in China over the past year.
Freedom Houses China Descent Monitor, for example, calculated that about eighty percent of all the protests that they documented for twenty twenty three were related to the economy. We're seeing an increasing number of protests related to the economic strains that people are feeling these days, including failed real estate projects, but that isn't bubbling up into widespread protests that present
any kind of existential challenge to the Party. What's really rare to see coordinated widespread protests in China because of the sort of tightly controlled nature of society, which is heavily surveiled. So typically protests in China's quite small scale, is quite sporadic, spontaneous in nature, and it very rarely targets the central government or President Shei Jinping himself directly
with criticism. If we do see criticism of authorities, it's more often directed, for example, to local governments or local authorities who they may feel have not sufficiently protected them against certain risks.
But Tom says it's important to keep the recent slowdown in context. The average Chinese household is still much better off than they were, say, forty years ago, and that buys the Party a certain amount of goodwill from the people. Plus, things are bad, but they aren't that bad.
We don't have mass unemployment we don't have average incomes falling. We don't have a financial crisis. So we're talking about a slowdown for many, a stagnation for some, but we're not talking about an economic crisis.
Meanwhile, the Pilot Bureau, China's highest policy making body, is signaling that it will take action to help support the economy.
So in economics, as in fairy tales, the magic number is very often three, and I see three planks to the Chinese Communist Party's strategy to deal with this new problem of slower income growth and falling wealth. The first
strategy is to stimulate. We're not seeing the big bazooka stimulus that we've seen in past Chinese downturns, but Beijing has definitely got out a bunch of water pistols, and it's trying to doubt the flames in the property sector and ensure that incomes and wealth don't fall too far. The second part of the strategy is something that political
scientists call preventative repression. That's the technological panopticon, which gives China's one point four billion citizens the strong sense that weather they're online or walking on the street, somebody's watching them. And the third part of the strategy is what Shei Jinpin calls common prosperity. It's the idea that the pie is going to grow more slowly, but it's going to
be shared out in a more equitable way. It's kind of a grab bag of different policies, finds for the tech monopolies, instructions to the gig economy, companies to pay their workers at least a living wage. The crackdown on the real estate sector, which is causing enormous pain for Chinese economy writ large, but is also bringing down house prices and making them more affordable to first time buyers.
And Rebecca says it's important to remember that the Chinese economy has multiple engines for growth. It's not just about real estate. She says. The government is eyeing new growth drivers.
One way to think about the Chinese economy is like an aeroplane that has two or four engines, so different engines and different things that are driving it. Now. Property is one of those engines, but there are other things too. There are things like exports that rely on global demand. And what we're kind of currently underway is a plan by seats in Pying and Buy Beijing to change what engines are driving that plane and what is essentially keeping
that plane up in the air. And as that happens, naturally, of course you get quite a bit of disruption. And if you're on the plane you look at that property engine and it looks like it's on fire. Of course, people start to panic, You start to really worry.
Yeah, And of course it's not going to be helpful to tell people not to panic.
Absolutely, it doesn't help to see one of those engines caught on fire. And it's very hard then to try and restore confidence. Ultimately, the goal is to get consumers back on the streets and spending.
It's hard to.
Do that if you see property in the state that it is. It's hard to be convince that you should go out and invest in a business. But that's not to say that, of course, the economy is anywhere close to the precipice of collapse, because you definitely still have these other engines of growth, and in the meantime, Beijing is,
of course China institute these other mechanisms. So look at, for example, the three new drivers, things like solar panels, evs, batteries, where the hope is that they will start to make up some of the losses that you're seeing in other parts of the economy.
And to better understand Reagan's question, are you better off in the China context, Bloomberg looked at two data sets, one on economic growth and another on political freedom. Bloomberg's analysis suggests China has come full circle in those two respects.
So we looked at IMF data on China's GDP growth, and we looked at a political science data set on freedom in China that includes things like freedom of the press, freedom for academics, and freedom to express your opinion public, for example. And these two data sets, when you bring them together and look at how growth and freedom have evolved in China over the last forty years, they tell
a really striking story. So back at the start of the reform era, or even before the reform era began, we see that growth was really weak and freedom was really constrained. And then if we go through and look later during China's leadership under Dengxilping, freedom's expanded and growth accelerated. Under Jang Zamin, freedoms remained in place and growth remained strong. And then finally under Hujin Tao, you saw the beginnings of a slowdown in growth, the beginnings of an erosion
of social freedoms. Finally, under Shejinping, the erosion of growth and the narrowing of social freedoms has continued to the point where China has almost come full circle, with growth slower and freedoms more strained. Though it is important to bear in mind, of course, living standards under President cy j In Ping versus under mauzadong a much much higher.
Thanks for listening to The Big Take Asia podcast from Bloomberg News. I'm wan ha. This episode was produced by Young Young, Naomi Um, Jessica Beck, and David Fox. It was mixed by Blake Maples and fact checked by Adriana Tapia. It was edited by Caitlin Kenney, Daniel ten Kate, and Ben Holland. There was additional assistants from Emily Cadman, Alan Juan Chen Hua When Eric Jue, Jennifer Welch, and Nick Hallmark Name with Shaven and Kim Gettlelson are our senior producers.
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