AAt a recent online meeting of China’s top economists, a palpable sense of urgency filled the virtual meeting room. Over the past few weeks, a slew of reports from Chinese and foreign economists have pointed to a deteriorating economy. Outside the country, talking about China as the engine of global economic growth no longer convinces.
During the meeting, Huang Yiping, a professor at Peking University and a former central bank adviser, urged Beijing to “do whatever it takes to save the economy.” Huang was paraphrasing a line from the height of Europe’s debt crises more than a decade ago, when European Central Bank President Mario Draghi said he was ready to “do whatever it takes to preserve the euro”.
Huang suggested, “Cash flow problems have arisen for many businesses and households. More direct support is needed for businesses and individuals. His remarks resonated with locked social media users after reports from the meeting emerged on Sunday. “[He’s] a brave Chinese scholar,” one wrote on WeChat.
The Chinese economy is in trouble. This week, official data showed a sharp decline in economic activity over the past month as shutdowns confined hundreds of millions of consumers to their homes and hit supply chains. Retail sales in April were down more than 11% from a year earlier – the biggest contraction since March 2020, shortly after the Covid outbreak.
In March, Prime Minister Li Keqiang pledged to grow China’s GDP this year to “about 5.5%” – the lowest official target in three decades. However, Fitch’s ratings earlier this month further reduced China’s forecast GDP growth for 2022 to 4.3% from 4.8%. Meanwhile, according to state media, tax receipts plummeted last month in Chinese cities following Covid lockdown measures.
On Friday, the People’s Bank of China lowered a key mortgage interest rate from 4.6% to 4.45% – a record amount – to support the real estate sector by reducing home loan costs across the country. However, there are growing calls for it to do more.
“There just aren’t enough jobs”
Winnie Zhang, senior product designer at Shanghai Jian Qiao University, is among millions of young Chinese feeling the pinch of the current economic situation. She is about to graduate from college but is struggling to find work. “Some companies have stopped sending offers or only have one round of interviews,” she said.
Zhang said many companies that received applications did not respond, and many explicitly stated that they were not looking for employees to work remotely. “I think this year’s graduates would think they have more job search pressure than 2017 and 2016 graduates.”
A record 10.76 million graduates are expected to enter the job market this year, according to official figures – 1.67 million more than in 2021, which was itself a record. Recent postgraduate employment surveys have revealed a weaker economic outlook, with available jobs falling to 0.88 per student in the fourth quarter of 2021. Average monthly salaries in 2022 are down about 12% from to 2021.
Recent strict lockdown measures in major cities, such as Shanghai, have made matters worse. In April, according to official data from China, the unemployment rate rose to 6.1% – the highest level since February 2020. Nancy Qian, professor of economics at the Kellogg School of Management at Northwestern University, said the real unemployment situation may actually be worse because of the different ways China’s statistics count unemployment.
“There just aren’t enough jobs to start with because the economy started to slow down a few years ago,” Qian said. “It really binds China now and there is no quick fix. And to create more jobs, Beijing needs to open up its markets. But Covid, Ukraine as well as US-China geopolitical tensions make it less likely short term.
A pair of contradictions
Chinese commentaries this month have frequently spoken of the need for stability – not only social and political stability, but above all economic stability. The Chinese premier, who has long been seen by analysts as out of favor with President Xi Jinping, has become more vocal about the need to grow the economy.
Last month, Li – who is due to step down after completing his second term in March 2023 – spoke openly while touring Jiangxi, eastern China, about his support for entrepreneurs, many of whom have expressed concern. last year their dismay at Xi’s various crackdowns on the private sector. “We support entrepreneurs and innovation,” Li told the crowd, adding that he especially wanted to see young people start their own businesses.
The prime minister, a longtime technocrat with a law degree and a doctorate in economics from Peking University, has big ambitions to transform the country’s debt-ridden economy, according to interviews with people who know him well. However, they said it was difficult for him to do much given the current mood music, where politics seem to take center stage.
Optimists see signs that with both internal and external pressures, efforts to bolster market confidence are more favored within the ruling Communist Party – at least for now. “It looks like China is back to its classic conundrum: political versus economic priorities,” Qian said. “Every country faces this compromise, but in China, this pair of contradictions has been salient since the founding of the People’s Republic in 1949.”
She added: “In the short term, Beijing’s prioritization of ideology – or ‘politics in the driving seat’ – will continue to dominate the headlines. But in the long term, the current economic situation and social dynamics could force the party elites to refocus on “the economy in charge”.
However, Professor Shaun Breslin of the University of Warwick, author of the book China Risen?, argued that the political instinct of the party has always been geared towards the short-term logic of social – and therefore political – stability. “And that always seems to trump longer-term arguments about the wisdom of fundamental economic restructuring,” he said.
On Tuesday, Vice Premier Liu He and the party’s fourth-highest ranking member, Wang Yang, met with top tech entrepreneurs at a symposium to reaffirm their support for the private sector as well as IPOs. technology at home and abroad. But the two senior executives also reminded businesses of the need to align with government goals.
“The danger is that after rounds of crackdowns on private companies [in the past two years], would entrepreneurs still be willing to play ball, or would they fear that any new freedom granted now could simply be taken away from them again in the future? said Breslin.
At the meeting of economists where Huang spoke, there was no explicit criticism of the government’s approach to Covid. Speakers explained how the government should increase production while controlling epidemics. Then, halfway through, Professor Yu Yongding, a respected government adviser who had been at home for a fortnight, was reminded to take another Covid test.
“I did nucleic acid testing for more than 10 days without a break. Here is another pop-up notification. I will have to negotiate with them. I’m sorry to end my speech like this,” he told the audience, who burst out laughing.
Additional reporting by Helen Davidson