BEIJING (AP) — Fangbiaogan Real Estate Agency, situated in the southern city of Nanning, is anxiously awaiting China’s post-COVID recovery. Despite the passing of time, the business is still grappling with the effects of the pandemic.
Home sales have remained sluggish, lingering at a striking 30-40% below the already depressed levels of the previous year. The recent economic performance only adds to the woes, as the growth in the latest quarter has been lackluster. The agency’s owner, who goes by the surname Cai, shares that the situation has forced him to make difficult decisions, including reducing his staff drastically from 80% to just 40 employees. The financial impact is severe, with income from sales commissions plummeting by as much as 90%.
“People are filled with apprehension,” reveals Cai. “They seem to prefer holding onto their savings rather than spending them, opting for a safer approach.”
Under the leadership of Xi Jinping, the Chinese government is making bold commitments to revive the economy from its crisis of confidence, which has been further exacerbated by tensions with Washington, dwindling exports, mounting job losses, and concerns among foreign companies regarding an expanded anti-spying law.
A notable commitment made by the Chinese government is to provide support to entrepreneurs who play a vital role in job creation and wealth generation. Over the past decade, these entrepreneurs have faced challenges as the ruling Communist Party strengthened its control over businesses, particularly favoring state-owned industries and pressuring private enterprises to contribute to the country’s technological and industrial ambitions.
Recognizing the urgency to instill confidence in the private economy’s prospects, the Cabinet declared its determination to take action. A significant announcement was made on July 19 to address this concern.
Entrepreneurs and investors are now closely observing what specific measures the ruling party will implement, such as tax incentives or increased spending. They are also keen to see if there will be efforts to curb the dominance of state-owned enterprises in critical sectors like banking and energy, which economists believe might be constraining overall economic growth.
This move comes as a response to the economic challenges China faced in recent times. The economy’s growth rate was a mere 0.8% in the three months leading up to June, down from 2.2% in the January-March period. This corresponds to an annual growth rate of 3.2%, which is among the weakest that China has experienced in decades.
As concerns over potential job losses loom large, retail sales growth in China experienced a significant decline, sliding from 12.7% in the previous month to just 3.1% in June.
Economists from Macquarie, Larry Hu, and Yuxiao Zhang, noted in a report that policymakers have underestimated the challenges in restoring confidence among households and private businesses. They emphasized the need for a comprehensive reset in macro and regulatory policies, advocating for a more pro-growth and pro-business approach.
In response to the economic challenges, the ruling party’s Politburo released a statement on July 24, pledging to bolster economic growth and provide support to the struggling real estate sector. However, investors remained cautious as they awaited concrete actions from Beijing.
Some individuals, like real estate broker Cai, expressed skepticism about the implementation of such policies, citing past instances where promised measures were not carried out effectively.
While China desires to benefit from the prosperity generated by free enterprise, it also requires businesses to invest in political initiatives, such as developing computer chips and addressing wealth disparities between the country’s elite and the majority of the population. Recent regulatory actions included the closure of internet-based tutoring services and the imposition of restrictions on children’s online gaming, further reflecting the government’s push to align businesses with its broader political goals.
Businesspeople and economists remain skeptical and don’t anticipate significant changes beyond minor adjustments in the government’s approach.
Julian Evans-Pritchard from Capital Economics expressed doubts about this move being a fundamental shift in the leadership’s perspective towards the role of private firms, suggesting that the underlying stance might remain unchanged.
In an effort to rekindle investor interest, China’s No. 2 leader, Premier Li Qiang, and Cabinet ministers have engaged in a charm offensive, holding meetings with influential CEOs like Tim Cook from Apple Inc. and Elon Musk from Tesla Ltd.
However, foreign companies are still wary due to unexplained raids on consulting and due diligence firms. Additionally, concerns arise from the expansion of anti-spying laws and the emphasis on technology self-reliance. These factors have contributed to a decline in foreign investment into China, as reported by official data, which recorded a 2.7% drop in the first half of 2023 compared to the previous year.
The uncertain environment has led 70% of foreign companies, according to a survey by the British Chamber of Commerce in China, to seek “greater clarity” before committing to new investments. The European Union Chamber of Commerce in China also noted that its members are shifting their investments to Southeast Asia and other alternative destinations to mitigate risks and uncertainties.
In June, China’s exports experienced a significant decline of 12.% from the previous year due to interest rate hikes aimed at curbing inflation, which subsequently dampened consumer demand from the United States and Europe.
The impact of this economic downturn is evident in various sectors. For instance, a furniture dealer in Taiyuan reported a 20-30% decrease in sales compared to the pandemic period. The dealer, known by her family name Ma, highlighted that her customers, who are mostly salaried urban workers, were still recovering from the effects of the anti-virus measures that led to company shutdowns.
As a consequence, Ma’s business has suffered losses throughout the year, unaware of the ruling party’s promise of support.
The economic challenges are particularly severe for young people in urban areas, with an official survey revealing a record-high unemployment rate of 21.3% in June. However, Peking University researcher Zhang Dandan suggests that the actual rate might be much higher, potentially nearing 50% when considering young individuals who receive financial support from their parents while attempting to find employment or have given up on job hunting altogether.
The Chinese Communist Party’s recent decision to reverse its stringent controls on the real estate market, imposed in 2020 to curb surging debt, underscores the seriousness of the current economic challenges. These restrictions had led to a wave of bankruptcies among developers and negatively impacted business activities.
Despite the easing of controls, the property industry still faces ongoing problems. Developers have managed to renegotiate payments with banks and bondholders, but analysts warn that they might encounter another cash crunch if sales do not improve. Notably, Evergrande Group, one of the largest developers, is still grappling with resolving more than $300 billion in debt.
Tech mogul Ma Huateng, the co-founder of Tencent Holding, known for his low public profile, broke his silence and praised the July 19 announcement, emphasizing its profound understanding of the challenges entrepreneurs face. Tencent, which operates the popular WeChat messaging service, has been a target of Beijing’s anti-monopoly and data security crackdowns since 2020, leading to a significant decline in its share price and market value.
The Chinese government has attempted to direct money towards the public by pressuring successful companies like Alibaba Group to increase wages and reduce charges. However, it has avoided adopting Western-style social welfare programs that directly benefit households.
In a politically sensitive suggestion, the chief economist of Bank of China International Ltd. proposed transferring ownership of strategically important state-owned companies to the Chinese public. This move, according to Xu Gao, would lead to increased income and consumption as the public receives dividends.
Nonetheless, the ruling party has not indicated any consideration for this alternative and remains ambiguous on certain matters, such as the status of law and consulting firms under the anti-spying rules, leaving many uncertain about the restrictions on gathering business-related information.
Moreover, with Xi Jinping asserting considerable power as China’s leader, there are concerns about potential abrupt policy changes as he pursues his economic, social, and strategic ambitions. This unpredictability adds to the apprehension, with some analysts warning that private firms could be targeted again in the future.
