When their government abruptly ended its draconian Covid measures in December, many Chinese expected a strong rebound from pent-up demand. Eight months later, China is instead facing an accumulation of bad news: record youth unemployment, a deep housing slump, stagnant spending, even deflation.
That’s a shock to many Chinese who are used to an ever-expanding economy and the standard of living that has risen with it. Now they struggle with slowing businesses and dwindling personal fortunes.
I spoke with more than a dozen business owners and consumers, as I have been doing for many years, and I can report: Their confidence in the future of the economy and the country is at a nadir. If they were hoping for a rebound, that hope was extinguished. They worry that this is the beginning of something they never dreamed of and fear that the government has no solution. The bad news just keeps on coming.
“The scariest thing is that everyone around me is at a loss for what to do next,” said Richard Li, the owner of an auto parts wholesale business. “I used to believe that our country would get better and better.”
In the first half of 2023, Mr. Li’s business revenue fell 15 percent from last year, when the city he lives in — along with more than 10 million other people — was locked down for weeks. .
He discovered that other companies like his were also struggling. Some of his clients, auto repair shops, have even closed their doors because car owners are cutting back on spending.
Mr. Li had four stores and closed two of them. He laid off two-thirds of his employees and stopped investing in new products. He also cut down on eating out and hanging out with his friends. Strapped for cash, he tried to sell an apartment he bought in 2020 as an investment. But there were some questions, even after he reduced the price to $400,000 from $500,000.
It becomes more difficult for people like Mr. Li who relied on the Chinese government to know what was happening in the economy. The data it has released for years has been withheld. Last week, it stopped sharing the unemployment rate for youth after the data hit a high of 21.3 percent in June.
But a set of official data the government wants to share about July is bad enough.
Consumer prices in China fell last month for the first time in more than two years. Chinese banks extended $47.5 billion of new renminbi loans, falling 89 percent from June — and half the amount a year earlier. Housing sales in terms of footage fell 6.5 percent in the first seven months of the year, after shrinking by nearly a quarter last year. In a country where three-fifths of household assets are tied up in real estate, that decline is alarming.
The anxiety is so strong that people are using a social media site called Xiaohongshu to post charms that they think will help them sell houses.
China slipped into deflation after the government’s draconian “zero Covid” policy severely curbed consumption and business activity last year. Chenggang Xu, an economist at Stanford University, explains why deflation can be harmful.
“The best-case scenario is that everyone expects prices to continue to go down, so they will continue to wait for prices to go down further,” he said. “The worst-case scenario is that people are very scared and very anxious.” Fear for their jobs or the safety of their businesses, he said, would cause them to save more and spend less, pushing the economy into a deflation trap.
With increasing anxiety, people are saving more and spending less.
Cob Liu, founder of an education start-up in a large city in southwest China, said his revenue has remained flat this year, which is bad for a company that used to grow 40 percent a year. Mr. Liu, in his mid-30s, has about $1.5 million in cash but is determined to keep his monthly spending to about $800, half of which goes to rent.
He’ll keep his five-year-old Toyota Corolla and won’t be buying property anytime soon. He bought apartments in two complexes in 2019, and the developers of both stopped construction after running out of money. That’s a nightmare hundreds of thousands, if not millions, of Chinese have been living through since the housing boom came to an abrupt end.
Mr. Liu believes that China’s economic downturn could last for years. He sold all his positions in mainland China stocks this year and said he would not hold shares of any Chinese company, even if they were traded in New York or Hong Kong.
Boris Dai, 44, is a commercial real estate consultant in Beijing who earned less than $15,000 in the first six months of this year. That’s half of what he made during the pandemic and less than 15 percent of his previous earnings. His other source of income — an office space he leases — evaporated after his tenant went out of business six months ago.
“I can only lie,” Mr. Dai said, using a phrase that describes a break from relentless work. “I have no expectations for the future.” He turned his sport utility vehicle into a sleeper vehicle so he and his wife could save on hotels when they travel.
Even businessmen who are good are reluctant to take loans because of their uncertain prospects.
Mark Fu, founder of a financial advisory firm with offices in Chengdu and Hong Kong, said his business is booming this year. Many wealthy Chinese, he explained, realized during the pandemic that money could not buy them safety or dignity and sought his help to move their financial assets out of China. Banks offered him business loans at low interest rates, but he was reluctant to take out a loan. Instead of expanding, he reduced his staff to 10 employees from 12 through attrition.
He said he was horrified by the government’s clampdowns on a number of industries during the pandemic. He said he used to believe that if he worked hard, he would succeed. Now he fears that how he runs his business is not the most important thing.
“Will the government wipe you all out at once?” he asked, “or let you earn a little?” He also has an apartment that he has not sold.
The mood on social media has become murky so a commentary in Securities Daily, an official publication, called for a crackdown on posts speculating about future problems. Rumormongering caused market volatility, the article said, citing headlines such as “China’s version of Lehman Brothers is coming!” and “A brokerage firm that will hold a conference call of ‘the darkest hour.’”
People despaired because they couldn’t figure out how China could get out of its downward spiral. At the root of the unrest, they believe, is the ideology of Xi Jinping, China’s main leader, who seems to dislike the private sector and has dismantled the elements of the market economy that have made China’s economy so successful.
At age 35, Andy Wang quit his job at a bank this year to prepare to apply for graduate school in Australia. He was suspended last fall when a slate of new party leaders was announced, all protégés of Mr. Xi. “The corrections ability of this country was gone after that,” he said.
His parents were wealthy, but he was pessimistic that he would ever have the same opportunities they once enjoyed. “I don’t see any way to make money in this country,” he said. “I’m not sure if I can maintain my current standard of living. I can only work hard to survive.”