During the pandemic, a new social movement has emerged in China. Tang ping — «lying flat» — has become a common term for young professionals resisting the pressure of the rat race, a blatant denial of President Xi Jingping's «Chinese Dream».
“They have lost optimism about where China is headed, and I think there are good reasons for that,” says George Magnus, freelance economist and author of Red Flags: Why China Xi is in Danger.
The Chinese Communist Party panicked. President Xi has publicly condemned the move.
However, when it comes to economic data, Chinese politicians may now prefer the concept of inaction. The country's trade data show something much more egregious — a sharp drop.
Chinese exports fall in July for the third month in a row, falling 14.5% year on year in dollar terms. This is the biggest drop since February 2020, when the pandemic began.
At the same time, imports fall for the fifth consecutive month, falling by 12.4 percent.
Consumption is so low that in July the economy fell into deflation for the first time since the beginning of 2021. The consumer price index in China fell 0.3% year on year after rising 0% in June. The expected surge in spending simply did not happen. Factory prices fell 4.4%.
098 Trade decline in Beijing
Export figures suggest a slump in global demand, especially in Western countries that are struggling with rising interest rates and high inflation.
But analysts have warned those numbers are likely to fall further as rising geopolitical tensions, tariffs , the fallout from China's anti-coronavirus policies and an increasingly authoritarian Xi regime are pushing international companies and investors away from China, just as the country's domestic economy is collapsing.
“Xi Jingping does not understand economics. That's the problem,” says Steve Tsang, director of the China SOAS Institute.
China was once known as the workshop of the world. However, «Made in China» is now in decline.
US shipments fell 23.1% in July. A number of other markets, including Taiwan, Japan and the EU, also posted double-digit declines.
Direct investment liabilities — a key indicator of foreign direct investment (FDI) in China — fell 87% to $4.9 billion between April and June. This was the lowest amount in any three-month period since at least 1998, according to the State Monetary Authority. data includes Hong Kong.
These figures are a harbinger of future trade. Foreign companies operating in China account for about 30% of Chinese exports, and they are slowly but steadily starting to move operations to other countries.
0908 Investment in China has plummeted
Tsang says: «Companies are starting to see that investment in China is subject to all sorts of restrictions that they have not been used to in the last 20 years.»
Foreign companies in China should give the Communist Party secretary a seat on their board of directors. Communist Party agents have always worked for Western multinationals, but they used to lobby for the interests of the company, Tsang says.
“Now that Xi Jingping is tightening up party control and demanding that party secretaries do more for the party in companies than vice versa. It has become more of a coercive role,” he says.
At the same time, foreign companies have witnessed a sharp, authoritarian swing in the Chinese government’s policy on Covid restrictions.
“The Crisis Zero Covid policies have created huge uncertainty for investment in China,” says Tsang.
“Companies don't care what politicians say. Companies care about their reliable supplies, their reputation, their business. And the Chinese have made investments more risky.
“Three to five years ago, Western companies looked at investing in China as a win-win option. If you didn't have operations in China, everyone asked why. Now you will probably have to explain why you are planning to expand in China.”
A number of large Western companies are already trying to diversify their supply chains. Apple plans to move some of its production out of China. Samsung has already moved significant parts of its supply chain. Siemens is looking for factories in Indonesia, Vietnam and Thailand.
Magnus says: «Gradually, trade controls, export controls, FDI, verification will negate China's status as the workshop of the world in a decade.»
p> China semiconductor
The fall in investment in China will have wide-ranging consequences.
«The reason it's really important is because it's an important way for China to get technology,» says Ken Rogoff, chair of international economics at Harvard University and former chief economist at the International Monetary Fund.
«Foreign companies build factories and copy them. It was a Chinese model. A slowdown in FDI will also mean a slowdown in innovation.”
Barriers have emerged on both sides. The Trump administration has imposed new tariffs on Chinese goods. The Biden administration has maintained these tariffs, and the US has also imposed restrictions on China's access to advanced chips.
Nearly 70% of all US imports from China are now subject to an average tariff of 20%, according to the analysis. up from 3% before the trade war, according to the Peterson Institute for International Economics.
China is also becoming less competitive as a place of production — it's more expensive than it was 20 years ago. The labor force is shrinking as the population ages, a demographic transition that is unusual in an emerging economy and partly driven by China's previous one-child policy.
1005 Slow demographic collapse threatens China
“That will push up wages even more,” says Magnus. “It won't happen overnight, but practically every company now has a 'China Plus One' or 'China Plus Two' strategy, which means they will keep their factories in China but their new factories will be in Vietnam, Indonesia or India. So China doesn't get growth,” says Rogoff.
One in five British importers are making changes to their supply chains due to geopolitical pressures, especially with China, according to a study by the Institute of Directors. Another 15% are considering making changes.
The fall in exports came at a difficult time for China. Real estate and infrastructure have previously been the engines of China's domestic economic growth. But now these projects have reached the saturation limit, and the real estate market is experiencing a protracted decline.
“Export is their strategy if they can't rely on housing,” says Rogoff. «This is just another of many signs that China is headed for a sustained slowdown.»
He expects China's economic growth to fall to 2-3% over the next decade, well below levels seen last time. decades and well below Xi's target of 5% this year.
China's growth rate has already halved between the 2000s and 2010s, falling from 10% to 5%, according to Magnus. «Now I think it's halved again.»
The reduction in imports is the biggest warning signal for China's economy, he says. Imports in the first seven months of 2023 decreased by 7.5 percent compared to the same period in 2022. This is a sign of the weakness of the domestic economy.
Rising youth unemployment, and the real estate market is in crisis. prolonged decline. Both of these factors affect consumption.
0908 Youth Unemployment Reaches New Highs
“Most of the Chinese people's long-term savings are invested in real estate. People hold property and only incur paper losses, but that has a huge impact on the feel-good factor,” says Tsang.
The Xi administration is scrambling to find ways to boost demand while China is working an aging population is sharply reduced. All the traditional leverage it tries to use no longer works.
“They face the same problems as Japan and the Soviet Union,” says Rogoff. «You just can't keep building houses that no one lives in.»
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