No end in sight to China's economic woes as it battles low spending, joblessness

NEW DELHI: The big bad news of the year for China was economic. The country’s economy has struggled to recover from the impact of Covid-19 shutdowns, and long-running structural problems have become impossible to ignore.

The economic data has been troubling all year, and it’s not getting any better. Foreign investment has plummeted and capital outflows have grown sharply, said an article in Foreign Policy.

Meanwhile, although job numbers have somewhat recovered on paper, official figures are highly unreliable, and the picture on the ground is depressing. Youth unemployment in China has reached such highs that the government stopped publishing the statistic this year.

The International Monetary Fund (IMF), based on Chinese official data, has predicted that China’s GDP grew by more than 5 per cent this year this year, but it’s unclear if that is anywhere near the truth, the article said.

The outlook seems the worst for new graduates, who face the kind of bleak job market that young Americans did amid the 2009 financial crisis. Despondency about the value of education is spreading, with graduates comparing themselves to Kong Yiji, a failed scholar from a famous 1919 short story. Young Chinese aren’t just “lying flat” by choice -- they are being crushed, it added.

A driving factor in China’s economic crisis is that people simply aren’t spending -- a major problem given that boosting domestic consumption has been key to Chinese economic hopes for years.

This is in part because the Chinese government was stingy with aid to households during the pandemic; massive spending on enforcing the zero-Covid policy left local authorities with few fiscal options to support the public.

The last three years have also seen successive government crackdowns on parts of the private sector, leading to job losses in everything from game programming to school tutoring.

All of this has made people more aware of the arbitrariness of government power and the risk that comes with it. Economic optimists hoped these crackdowns might end this year; instead, they have expanded to other areas, including health care, the article said.

After three years of waiting for potential Covid-19 lockdowns and with jobs disappearing at the government’s whim, it’s no wonder people in China don’t have a lot of confidence in the future.

That has led to more reluctance to get married. adding to the looming demographic crisis. As many people feared, China seems to be getting old before it gets rich, the article said.

Yet even Chinese savings aren’t safe. Property is the overwhelming vessel for wealth investment in China, where 70 per cent of household assets are tied up in property.

For two decades, property prices soared faster than the rest of the economy. Now, China’s real estate developers are nearly bankrupt and the sector is in slow-motion collapse. The government has worked hard to prop up the prices of new homes, but they’re still falling; the secondary market is even worse.

The Chinese economy was expected to recover quickly in 2023 and resume its role as the undisputed engine of global growth. Instead, it stalled to the point where it’s being called a “drag” on world output by the IMF, among others, CNN reported.

Despite its many problems -- a property crisis, weak spending and high youth unemployment -- most economists think the world’s second largest economy will hit its official growth target of around 5 per cent this year.

But that is still below the 6 per cent-plus annual growth averaged in the decade before the Covid pandemic, and 2024 is increasingly looking ominous, they said. The country may be staring at decades of stagnation thereafter, CNN reported.