At a recent online gathering of top Chinese economists, a palpable sense of urgency filled the virtual meeting room. In recent weeks, a slew of reports by Chinese and foreign economists pointed to a deteriorating economy. Outside the country, talk of China being the engine of global economic growth no longer convinces.
During the meeting Huang Yiping, a Peking University professor and a former central bank adviser, urged Beijing to “do whatever it takes to save the economy”. Huang was paraphrasing a line from the height of the European debt crises more than a decade ago, when the European Central Bank’s then president, Mario Draghi, said it was ready to “do whatever it takes to preserve the euro”.
Huang suggested: “Cashflow problems have shown up for many enterprises and households. More direct support is needed for affected companies and people.” His remarks have resonated with locked-down social media users after reports of the meeting were released on Sunday. “[He’s] a courageous Chinese intellectual,” one wrote on WeChat.
China’s economy is struggling. This week, official data showed a sharp fall in economic activity in the past month, as lockdowns confined hundreds of millions of consumers to their homes and hit supply chains. Retail sales in April shrank more than 11% from a year earlier – the biggest contraction since March 2020, shortly after the Covid outbreak.
In March, the premier, Li Keqiang, pledged to grow China’s GDP this year at “around 5.5%” – the lowest official target in three decades. However, Fitch ratings earlier this month cut China’s 2022 forecast GDP growth further, to 4.3% from 4.8%. Meanwhile, according to state media, fiscal revenues plunged last month across Chinese cities as a result of Covid lockdown measures.
On Friday, the People’s Bank of China cut a key mortgage interest rate from 4.6% to 4.45% – a record amount – to support the property sector by reducing home loan costs across the country. However, there are growing calls for it to do more.
‘There are just not enough jobs’
Winnie Zhang, a product design senior at Shanghai’s Jian Qiao University, is one of the millions of young Chinese feeling the pinch of the current economic situation. She is about to graduate from the university but is struggling to find work. “Some companies have stopped sending out offers, or they are only having one round of interviews,” she said.
Zhang said a lot of companies that have received applications haven’t responded, and many said explicitly that they were not looking for employees to work remotely. “I think graduates this year would think they have more pressure in job hunting compared with graduates in 2017 and 2016.”
A record 10.76 million graduates are expected to enter the job market this year, according to official figures – 1.67 million more than in 2021, which itself was a record. Recent surveys on postgraduate employment found economic prospects declining, with available jobs falling to 0.88 a student in the fourth quarter of 2021. Average monthly salaries in 2022 are down about 12% from 2021.
Recent stringent lockdown measures in major cities, such as Shanghai, have made things worse. In April, according to China’s official data, the unemployment rate rose to 6.1% – the highest level since February 2020. Nancy Qian, an economics professor at the Kellogg School of Management at Northwestern University, said the real unemployment situation may actually be worse because of the different ways Chinese statistics count joblessness.
“There are just not enough jobs to start with, as the economy began to slow a few years ago,” Qian said. “This is really binding China now and there’s no quick fix. And to create more jobs, Beijing has to open up its markets. But Covid, Ukraine as well as US-China geopolitical tensions are making it less likely in the short term.”
A pair of contradictions
Chinese commentaries this month have frequently raised the need for stability – not only social and political stability but primarily economic stability. China’s premier, who for a long time was thought by analysts to be out of favour with President Xi Jinping, has become more vocal about the need to grow the economy.
Last month, Li – who is to step down upon finishing his second term in March 2023 – spoke openly during a tour of Jiangxi in eastern China of his support for entrepreneurs, many of whom have in the last year expressed dismay amid Xi’s various crackdowns on the private sector. “We support entrepreneurs and innovation,” Li told the crowd, adding he was particularly keen to see young people start their own businesses.
The premier, a longtime technocrat with a law degree and a doctorate in economics from Peking University, has had big ambitions to transform the country’s debt-driven economy, according to interviews with people familiar with him. However, they said it has been difficult for him to achieve much, given the current mood music, where politics seems to take a front seat.
Optimists see signs that, with internal as well as external pressures, efforts to boost market confidence is more preferred within the ruling Communist party – at least for now. “It seems China is back in its classic conundrum: political priorities v economic priorities,” Qian said. “Every country faces that trade-off but in China this pair of contradictions has been salient ever since the founding of the People’s Republic in 1949.”
She added: “In the short-term, Beijing’s prioritisation of ideology – or ‘politics in command’ – will continue to make headlines. But in the long run, the current economic situation and social dynamics may be forcing party elites to refocus on ‘economy in command’.”
However, Prof Shaun Breslin of Warwick University, the author of the book China Risen?, argued the party’s political instinct has always been about the short-term logic of social – and therefore political – stability. “And it always seems to trump longer-term arguments about the wisdom of fundamental economic restructuring,” he said.
On Tuesday, the vice-premier Liu He and the fourth highest-ranking party member Wang Yang met senior tech entrepreneurs at a symposium to reaffirm their support for the private sector as well as tech IPOs at home and abroad. But the two senior leaders also reminded the companies of the need to align with government goals.
“The danger is that after rounds of crackdowns on private businesses [in the past two years], would the entrepreneurs still be willing to play ball, or would they be wary that any new freedoms given now might simply be taken away again in the future?” Breslin said.
At the meeting of economists where Huang spoke, there was no explicit criticism of the government’s approach to Covid. Speakers talked of how the government should boost production while controlling outbreaks. Then, mid-speech, Prof Yu Yongding, a respected government adviser who had been staying at home for the past fortnight, was reminded to do another Covid test.
“I’ve done nucleic acid tests for more than 10 days non-stop. Here’s another pop-up notification. I’ll have to negotiate with them. I’m sorry to end my talk like this,” he told the audience, who burst into laughter.
Additional reporting by Helen Davidson