China seeks ways to revive slowing economy and salvage property market
It's clear that China's efforts to build confidence in its slowing economy will top the agenda of its ceremonial national legislature, which convenes Tuesday in Beijing.
What remains unclear is how the ruling Communist Party can navigate toward stronger, sustained growth as China's workforce is aging, relations with Washington are fraught, and housing construction — a main driver of the economy — is in crisis.
Hopes for a strong, consumer-led recovery after severe anti-virus controls ended in late 2022 have not been fulfilled. Local governments are mired in trillions of dollars of debt and direct investment by foreign companies in China fell by about 80% last year.
As more than 5,000 leaders from across China are gathered in Beijing for the year's biggest political events, the mood on the streets and in financial markets remains glum.
That's in contrast to official messaging as the country marks 75 years from the People's Republic's founding in 1949.
“We are confident of consolidating and enhancing the recovering and growing trend of the economy,” the party newspaper People's Daily wrote in a commentary Saturday.
“We are fully capable of turning pressure into a driving force, accumulating and turning advantages into victorious trends and steering the advance of the great ship of the economy while braving wind and waves,” it added.
For videographer Wang Tao, the question is what the leadership will do about jobs. At 41, he's struggling to find work in a labor market where companies tend not to hire anyone over 35.
“At first I thought it was difficult only for older people like me, but later I found out that many young people … are having a hard time finding work,” Wang said. “The general employment situation is grave.”
The congress endorses decisions already made by top leaders, providing a platform to publicize government plans and instruct officials on what they should do back home.
China's most powerful leader in decades, Xi Jinping, will preside. He has installed loyalists in top posts to strengthen the party's control over the economy and society. Xi, 70, is in his third five-year term as party general secretary and may hold that post for life.
Premier Li Qiang is expected to announce an official economic growth target when the National People's Congress convenes Tuesday in Beijing's ornate Great Hall of the People. State media suggest it will be about 5%, on par with last year's 5.2% growth.
Many economists are forecasting growth will slow to well below 5%. In 2022, it dipped to 3%, the second-lowest level since at least the 1970s.
Li's annual work report will include plans for “promoting high-quality development and advancing Chinese modernization,” the official Xinhua News Agency reported.
Many in China are hoping that will mean more government spending, said Logan Wright of the Rhodium Group, an independent research firm.
“Everyone will be watching for whether there is significant fiscal stimulus on offer,” Wright said. But spending alone won't suffice. “The time to solve the short-term problems and prevent them from becoming long-term problems is now. So what is the plan?” Wright said.
The downturn in the property market followed a crackdown on excess borrowing by real estate developers. Dozens since have defaulted on their debts. The largest, Country Garden, faces liquidation proceedings. Another, China Evergrande, is being liquidated with more than $300 billion in debt.
Plunging tax revenues from property sales are also weighing on the financial system. To encourage more property lending, the central bank has cut its fiveyear prime loan rate. Many cities have relaxed controls on property deals imposed earlier to cool price bubbles, and some 6,000 property projects have been green-lighted for lending.
“The property market has been such a significant source of China's growth and now it has gone into reverse,” Wright said, though he noted there are signs the market is stabilizing. “If you look at how China is responding to this, it is indicative of a more severe slowdown than what the official data would suggest.”
The problems deepened with shocks from the pandemic, when anti-virus controls led some cities into weekslong shutdowns and factories ended up with huge backlogs. Now, instead of soaring prices, China is trying to fend off a potentially debilitating cycle of deflation, or chronically falling prices.
Exports, another main driver of growth, dropped in 2023 for the first time in seven years, even as the U.S. economy remained defied forecasts that it would fall into recession.
Despite official indications
that China's yearslong anti-monopoly and data security crackdowns on technology companies have ended, entrepreneurs are jittery. Many small businesses complain they cannot collect on bills owed to them, and bankruptcies have soared.
Meanwhile, global companies have been shifting investments to countries like India and Vietnam to minimize risks from ChinaU.S. political tensions and the party's tighter domestic controls, in some cases raiding the Chinese offices of foreign businesses.
“The system is not that transparent and the lack of transparency creates a lot of uncertainty,” said James Zimmerman, a lawyer and former head of the American Chamber of Commerce in Beijing. That's particularly true when it comes to issues of national security, he said, where just conducting research for due diligence can land people in jail.
Xi's talks with President Joe Biden and U.S. business leaders at a regional summit in San Francisco in September conveyed the message that “China is open for business,” Zimmerman said, “but there was nothing in there in his presentation that got to specifics about what reform and what type of changes are going to happen, you know, to give people the comfort level.”
These challenges come at a time of transition.
China's workforce has been shrinking for over a decade, putting pressure on an economy that still relies on labor-intensive industries. With housing prices falling and stocks prices limping along, even middle-class families are scrimping rather than spending.
“Spending power is worse than before, probably because we didn't make money during the pandemic,” said Jiang Yingjie, a salesperson in Beijing.
One strategy would be to shift more national wealth into workers' pockets, says Michael Pettis, a leading expert on the Chinese economy and professor at Beijing University.
“The problem in China has been the same problem for the last 10 years ... and that is that domestic demand driven by consumption is very weak,” he said. Meanwhile, excess investment in construction is yielding diminishing returns.
“So this year is really a year in which they try to figure those imbalances out. They want to raise consumption. But it's very hard to do that because that involves a major redistribution of income,” Pettis said.
Worries that China may try to export its way out of its troubles are already raising alarm in the U.S. and Europe, as Chinese banks step up lending to manufacturers of electric vehicles, solar panels and many other industrial products. The issue already features highly in talks between Beijing and Washington.
“If you manufacture more and more and you don't consume it, then you need trade surpluses to absorb it,” Pettis said.