Most people in China, from consumers to government officials, remain nervous about the economy despite surprisingly strong numbers in the first quarter.
This skepticism comes from a public that seems to have all but given up on the economy, which has failed to meet expectations for recovery for so long.
Feeling tired seems natural. Most of the growth in the first quarter was brought forward, and the latest indicators on key sectors of the economy show that gains since then have faded.
Employment stability is also a concern. With unemployment rates approaching 20%, especially among young Chinese, employers have significant leverage to fire and rehire large numbers of new applicants.
Multiple independent contractors revealed. Barons Their work is much less than before. “For myself and most of my friends in this area, it’s not as busy as it was before the pandemic,” Xiao Gai, 32, an art director from the western metropolis of Chongqing, said in a phone interview. .
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Towards the end of the quarter, retail sales growth slowed in March and industrial production also fell short of expectations. This not only shows that important parts of the economy remain weak, but also areas that China’s leaders have long wanted to move towards healthy growth, such as domestic consumption. ing.
Moderate overseas demand is keeping China’s manufacturing afloat, but factory prices are wiping out this bright spot. Prices have been falling for more than a year, and the latest figures showed the economy sliding further into deflation.
China’s deflation reflects weak domestic demand, but it is also contributing to it. This is one of the reasons why buyers continue to close their wallets in an economic situation that is unable to stimulate domestic consumption.
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Another major reason for the meager domestic spending is continued weakness in consumer confidence. Chinese shoppers continue to feel that the economy and employment are unstable. The main reason for this is the slump in the real estate sector for the first time in four years.
China’s real estate sector accounts for about a quarter of the economy and has been the biggest drag on the economy since tight liquidity and falling prices began in 2001.
New home prices fell 2.2% year-on-year in March, according to NBS data, the steepest decline since August 2015 and worse than the 1.4% drop in February.
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The real estate industry not only accounts for a large portion of GDP, but is also where most Chinese people (70%, according to estimates) save. Because the value of people’s property is falling, people are less likely to spend more.
“If house prices and pensions continue to fall, what kind of security will I have in my 70s?” said Zhong Weiyi, a 58-year-old car dealer just outside Chengdu, a vast city in western China. Told.
There are signs that the government may be prepared to move beyond the gradual measures of last year. The problem is that these do not yet seem to target demand-side factors such as increasing consumer willingness to spend.
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Instead, they continue to target manufacturing and infrastructure investments. For example, China has increased the rate of its purchases of primary goods, leading analysts to suspect that Beijing is preparing to introduce a so-called economic nuclear option.
A devaluation of the renminbi is widely seen as a “nuclear option” as it could have ripple effects on other parts of the world. By deliberately devaluing the yuan, China can make its products cheaper and more competitive, stimulating exports. However, this risks triggering serious repercussions from trading partners, and the measure could potentially do as much harm as good.
“China is preparing for something big. Judging by its stockpiles of critical resources, it seems increasingly clear,” Andreas Steno Larsen, CEO of Steno Research, said in a recent note. I wrote this:
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