That’s how bad things are in China: the economy is in ruins but no one is allowed to talk about it

China has lost much of the trust of its Western trading partners

The era of strict coronavirus restrictions that slowed world trade has been over for a year, but China is suffering economically from long Covid. Trade restrictions, especially with the United States, geopolitical tensions, and decreased confidence in China’s reliability among global economic partners make global trade even more difficult. Xi Jinping (70) wants to weaken Western democracies, incites people with his friendship with Putin and openly flirts with the invasion of Taiwan. The Chinese autocrat regards the democratic island state as a “renegade province”. This situation alarms Europe and the USA. Despite all the hostilities, China is still dependent on trade with the West.

By mid-2023, China’s exports fell by 15 percent and imports by 12 percent compared to the previous year. Direct investments of foreign companies decreased by 8 percent in 2023. Meanwhile, Western countries are also implementing practices called risk reduction. They want to free themselves from economic dependence on China and are looking for other economic growth partners. A survey by the European Union Chamber of Commerce showed that ten percent of the 570 members surveyed have already left China and 20 percent plan to do so. Asian countries such as Indonesia (2023: plus 5.05 percent), Vietnam (2023: plus 5.05 percent) and India (2023: plus 6.1 percent) are increasingly competing with China in raw material trade, textile and electronics production .

Real estate crisis also affects banks

In addition to the real estate crisis and the collapse in the stock market, falling domestic demand disrupts the desired growth. In mid-August, Evergrande Group, China’s second largest construction company, went bankrupt for over 300 billion francs. This was followed by two other listed property giants, Country Garden and China State Construction, which each owe over 250 billion francs. Nine of China’s ten most indebted companies are construction companies.

The collapsing real estate sector has affected most of the 4,000 banks because their outstanding debts mostly relate to real estate or local government bonds, which are also heavily indebted, said Wang Dan, chief economist at Hang Seng Bank China. For example, shadow bank Zhongzhi Enterprise Group, one of the leading financial companies, was forced to file for bankruptcy in early January. All of this puts a strain on the stock market. Three weeks ago, the CSI 3000 stock index, which tracks price developments in Shanghai and Shenzhen, China’s two largest stock exchanges, fell to a five-year low.

Youth unemployment is at record high

The crisis weakens the economy. Production fell for the fifth consecutive month in February, according to the national statistics agency’s report. Jobs are being cut, salaries are being cut. Youth unemployment is reaching a record high of almost 16 percent. This puts pressure on the consumer mood of the population. If domestic demand decreases, there will be a further decline in production and the risk of more layoffs. People are spending less money now. Vicious circle.

Deflation hangs over the economy like the sword of Damocles. In January 2024, prices fell by 0.8 percent compared to the previous year. This is the sharpest decline in 15 years. This trend is supported by a rapidly shrinking and graying population. By 2023, the population has decreased by two million people. One in five Chinese people is already over 60 years old.

“Economy is like air”

No significant economic stimulus was promised on the first day of the current People’s Congress. Instead, China wants to invest in high technology. The semiconductor industry, environmental technologies, electric cars and industrial robots will be supported by the state in the future and form the new basis of the Chinese economy.

Premier Li Qiang, who took office just a year ago, acknowledged the difficult times in his hour-long speech. But he believes in his predictions. Li compares economic curves to the weather. His first trip abroad took him to Berlin in June 2023. The Chinese told the businessmen gathered there: “We should not bow our heads when it rains heavily. When the time comes, we will see the rainbow.” Just like the weather, the economy naturally has a cycle, including in China.