As China marks its 75th National Day, the atmosphere is marred by economic struggles. The nation faces significant challenges, including high unemployment and a slumping housing market.
Recent years have seen a shift in the economic outlook from positive projections to concerns about stagnation. The Chinese government has introduced various stimulus measures, but the country’s path to recovery remains uncertain.
Economic Challenges Amidst Celebrations
As China celebrates the 75th anniversary of its founding, the backdrop is an economy struggling to regain its footing. Youth unemployment is at a record high, pay cuts are rampant, and middle-class families face diminished wealth due to falling housing prices. The sentiment across many sectors is one of gloom rather than festivity.
A recently coined term, ‘the garbage time of history’, captures the mood. It likens the current period to the final minutes of a hopeless basketball game, reflecting a belief that China’s economic recovery is far from assured. This is a sharp contrast to the optimism that pervaded the nation five years ago.
Government Response and Stimulus Measures
In response to the economic downturn, Chinese leader Xi Jinping has endorsed a significant stimulus package aimed at rejuvenating the economy. The central bank has taken steps to counteract deflation, such as enabling commercial banks to extend more credit and reducing borrowing costs for both households and businesses.
Efforts include cash handouts to disadvantaged citizens and subsidies for recent graduates. Additionally, the Politburo has pledged to increase fiscal spending, stabilize the property market, and improve job prospects for graduates and migrant workers. Yet, experts argue that these measures may not be enough to address the root causes of the economic slowdown.
Market Reactions and Investor Sentiment
Despite the economic challenges, China’s stock market has witnessed a remarkable rally. Blue-chip stocks surged over 15% last week, marking the largest weekly gain in 16 years. Hong Kong’s Hang Seng index also soared by 13%, achieving its best week since 1998.
However, some economists caution that stimulating the stock market might not translate to real economic growth. Only a small fraction of the Chinese population engages in stock market investments, and therefore, the benefits are unlikely to be widely felt.
Structural Economic Issues
Experts contend that China’s long-term issues stem from its dependence on investment-led growth, which is nearing its limits. Significant reforms, such as income redistribution and enhanced social welfare, are necessary for sustainable consumption-driven growth.
While the recent measures may boost short-term confidence, they fall short of resolving fundamental structural problems. The high savings rate in China implies that lasting reforms in social welfare and healthcare are needed to encourage long-term consumer spending.
Real Estate Sector Woes
The real estate sector, accounting for about a quarter of China’s GDP and 70% of household wealth, remains in crisis despite government efforts to revive it. Housing prices continue to plummet, and policy measures have failed to stimulate demand significantly.
Cities like Guangzhou, Shanghai, and Shenzhen have lifted restrictions on home purchases, but the outlook remains bleak. China faces a surplus of empty apartments, exacerbated by a shrinking population, posing further challenges to economic recovery.
Youth Unemployment and Social Sentiments
The high youth unemployment rate is a significant concern for Chinese authorities. The rate hit a record 18.8% in August, reflecting the broader economic malaise and the impact of regulatory crackdowns on private sectors like tech and education.
There is a growing sense of disillusionment among the youth, with terms like ‘lying flat’ and ‘letting it rot’ becoming popular. These expressions of passive resistance highlight the disconnect between young people’s expectations and the reality of limited job prospects and shrinking freedoms.
Nationalism as a Tool for Regime Legitimacy
As economic growth slows, Chinese leader Xi Jinping is leaning on nationalism to bolster the regime’s legitimacy. While the Communist Party aims to restore economic confidence, it is increasingly relying on patriotic sentiment to unite the public.
China’s National Day celebrations are tempered by ongoing economic uncertainties. While government measures have provided short-term relief, long-term structural reforms are essential for sustainable growth.
As China navigates these economic challenges, the balance between maintaining stability and implementing necessary reforms will be crucial. The coming years will determine whether the nation can achieve a more resilient and balanced economy.
