Speaker 1: Bloomberg Audio Studios, podcasts, radio news China's economy is in
Speaker 1: a slowdown. To get a better picture of how the
Speaker 1: slowing economy is affecting people on the ground, Bloomberg talked
Speaker 1: to people across a range of incomes and industries.
Speaker 2: People with their own companies, entrepreneurs, people working in the
Speaker 2: financial sector, but also people working as window cleaners, people
Speaker 2: supplementing their income as d D drivers.
Speaker 1: Rebecca Chung Wilkins is Bloomberg's correspondent for the Economy and
Speaker 1: Government team in Hong Kong. None of the people Bloomberg
Speaker 1: spoke to wanted us to record their voices for fear
Speaker 1: of repercussions in China, but by and large, people did
Speaker 1: tell us that they aren't feeling as well off as
Speaker 1: they did five years ago. One of them is mister Kwang,
Speaker 1: who asked us to use just his last name.
Speaker 2: He is an entrepreneur, so he's a commodity trader in
Speaker 2: his forties, and a few years ago he started his
Speaker 2: own company, running his own outfit.
Speaker 1: Essentially in the pre COVID years, Huang was pretty successful
Speaker 1: and had a cushy life.
Speaker 2: He bought an apartment in this very trendy district of Shenjen.
Speaker 2: He also bought himself and treated himself to a Tesla
Speaker 2: Model X.
Speaker 1: But things have really changed for him in the last
Speaker 1: few years. Huang says business has never been tougher.
Speaker 2: So his business essentially predicated on buying energy from generators
Speaker 2: and selling this to small factories. And what he told
Speaker 2: us is that he finds that these factories aren't wanting
Speaker 2: to lock in chower contracts that as long as they
Speaker 2: previously would, and it's essentially because they're just not sure
Speaker 2: that there is going to be continued strong demand for
Speaker 2: their products.
Speaker 1: All that meant Huang has had to make some hard
Speaker 1: decisions about his own business.
Speaker 2: Ultimately, he's ended up sacking five employees in his life
Speaker 2: firm because he has this worsening outlook over the market
Speaker 2: for twenty twenty four and he talks about having last
Speaker 2: year to become a sort of so called run fan nane.
Speaker 1: Okay, wait, wait, so you have to explain what is
Speaker 1: run funan.
Speaker 2: So ruan fan nan is this expression that literally translates
Speaker 2: as something like a sort of soft rice man. But
Speaker 2: this idea of being a soft man and not being
Speaker 2: able to provide for your family, and it's really a
Speaker 2: joke about the fact that he had to rely on
Speaker 2: his wife's income to take care as his family last year.
Speaker 1: What Huang is experiencing is a new reality for many
Speaker 1: Chinese citizens.
Speaker 2: Mister Huang also tells us that he's far from alone
Speaker 2: in this situation. He talks about how a lot of
Speaker 2: the private business owners that he knows are trapped in
Speaker 2: this debt cycle, so they're borrowing new loans to pay
Speaker 2: old ones, and even those who were, for example, considering
Speaker 2: having more kids have had to cancel those plans because
Speaker 2: they can't afford to grow their family right now.
Speaker 1: Rebecca says, the negative sentiments the downturn is stirring up
Speaker 1: could be a real problem for the ruling Communist Party,
Speaker 1: and that's because for decades the party has held power
Speaker 1: through a kind of bargain with the Chinese people.
Speaker 2: So one way to think about this bargain or this
Speaker 2: relationship is as a kind of social contract. Essentially, people
Speaker 2: accept fewer freedoms in exchange for a promise of a
Speaker 2: better life. So Chinese people don't necessarily have an active
Speaker 2: say in how they're being governed. They don't get to
Speaker 2: vote in elections, but what they do get for the
Speaker 2: last several decades is a rapid increase in their prosperity. Now,
Speaker 2: some political scientists debate whether you can really call this
Speaker 2: a social contract because ordinary Chinese people don't have a
Speaker 2: say in that exchange. But there is still this broader question,
Speaker 2: which is what happens when that promise of prosperity, when
Speaker 2: that bargain starts to falter. And now we see that
Speaker 2: it isn't necessarily breaking down entirely, but we are starting
Speaker 2: to see these signs that the bargain is beginning to fray.
Speaker 1: Welcome to The Big Take Asia from Bloomberg News. I'm wanh.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons, and
Speaker 1: businesses that drive this ever shifting region. Today on the show,
Speaker 1: China's economic miracle is ending. So how does President shi
Speaker 1: Jinping keep up the bargain that the communist parties had
Speaker 1: with its people for decades? So there are a number
Speaker 1: of reasons why people in China aren't feeling great about
Speaker 1: the economy right now. The most looming setback is the
Speaker 1: property sector.
Speaker 2: So the bulk of household wealth in China is actually
Speaker 2: held in real estate. About seventy percent of family assets
Speaker 2: are tied up in property, and for more than decade
Speaker 2: there was too much property speculation, too much building, and
Speaker 2: too much debt. And the consequence ultimately of this whole
Speaker 2: housing boom was that China was left with a huge
Speaker 2: amount of overcapacity in the real estate sector. Bluebug Economics
Speaker 2: estimates that at the start of the twenty twenties, China
Speaker 2: was building about thirty percent more property than it actually
Speaker 2: needed each year.
Speaker 1: At the end of twenty twenty one, one of China's
Speaker 1: biggest developers, ever Grant, defaulted on its bonds. Basically, they
Speaker 1: were unable to pay their debt to investors. Their default
Speaker 1: was followed by more than three dozen firms that also
Speaker 1: struggled to manage their debt loads. Rebecca says the collapse
Speaker 1: in the property market has people feeling pessimistic about making
Speaker 1: other kinds of investments.
Speaker 2: So Chinese people have gone from thinking I've got this
Speaker 2: asset which is hugely valuable and accruing more value each
Speaker 2: year I'm rich to now thinking I've got this asset
Speaker 2: which I thought was really valuable, but maybe it isn't,
Speaker 2: and I just don't feel quite as rich as I
Speaker 2: did a few years ago.
Speaker 1: Another reason why some Chinese people aren't feeling quite as
Speaker 1: rich as wage cuts. The Common Prosperity Agenda, one of
Speaker 1: Schijenping's signature policies, brought crackdowns on multiple industries, technology, property, education,
Speaker 1: and even gaming, and that of course led to massive
Speaker 1: job and wage cuts. It aimed to close the wealth
Speaker 1: gap and lift the country's poorest. Here's what Bloomberg's chief
Speaker 1: economist Tom Orlick has to say on the policy.
Speaker 3: What's the motivation for the Common Prosperity Agenda. Well, I
Speaker 3: think it's partly that China had a big problem with inequality.
Speaker 3: The rich were getting really, really rich, but a bunch
Speaker 3: of people were being left behind. So Common Prosperity is
Speaker 3: partly about addressing that problem. It's also about how to
Speaker 3: deal with a slower growing economy. When the economy is
Speaker 3: growing eight, nine, ten percent, everyone's getting richer, everyone's feeling happy,
Speaker 3: everyone's supportive of Communist Party rule. When the economy is
Speaker 3: just growing four or five percent, well, you need to
Speaker 3: pay a bit more attention to how that four or
Speaker 3: five percent is getting shared out to make sure everyone's
Speaker 3: getting a little bit of the pie now.
Speaker 1: To be clear, the official data show average incomes are
Speaker 1: still rising, more slowly, but still rising, but other indicators
Speaker 1: suggest that things might be less positive.
Speaker 3: We look at business surveys. They show factories and offices
Speaker 3: thinking more about shedding workers than adding workers. We look
Speaker 3: at a survey from the Central Bank, which suggests that
Speaker 3: households are getting more and more pessimistic about their future earnings.
Speaker 3: So we don't have perfect clarity on what's happening in
Speaker 3: China's labor market or what's happening with China's wages, but
Speaker 3: the data we do have suggests a minimum wage grate
Speaker 3: is slowing, and perhaps there are some more serious problems there.
Speaker 1: All that leads to a shrinking of household spending. People
Speaker 1: aren't buying new houses or having kids.
Speaker 2: So, just like mister Huang mentioned when he talked to us,
Speaker 2: some of his friends no longer want to have children,
Speaker 2: or they're delaying plans to have children because they just
Speaker 2: don't feel like they can afford to. And this is
Speaker 2: a bigger problem that people don't necessarily want to have
Speaker 2: babies if they're worried about being able to afford a
Speaker 2: bigger apartment to house another child. As well as account
Speaker 2: for all the extra cost things like education, medical care. Essentially,
Speaker 2: it's this concern that they're worried about whether or not
Speaker 2: they have enough money and just how much is going
Speaker 2: to cost to have a bigger family.
Speaker 1: So, Rebecca, at the beginning of the show, we mentioned
Speaker 1: the bargain between China's rule and Communist Party and the
Speaker 1: Chinese people. Right, you give his control, we make you
Speaker 1: prosperous now, and his current leadership is facing an ongoing
Speaker 1: real estate crisis. You've got slowing growth and income and
Speaker 1: a low fertility rate, among other things. On top of that,
Speaker 1: many Chinese may not be as hopeful about their futures
Speaker 1: right now. Is China's social contract being renegotiated here?
Speaker 2: So the way we frame this question in our story
Speaker 2: is in terms of Ronald Reagan's famous question to US
Speaker 2: voters back in nineteen eighty, which is, are you better
Speaker 2: off than you were four years ago? And of course,
Speaker 2: back in nineteen eighty, for many American voters, the resounding
Speaker 2: answer to that question was no, I'm worse off, which
Speaker 2: is why Jimmy Carter lost the election and Ronald Reagan
Speaker 2: entered the White House. Now, China doesn't have elections, but
Speaker 2: it does have politics, and one of the reasons why
Speaker 2: politics in China has been so stable is because the
Speaker 2: Chinese Communist Party for much of the past for decades,
Speaker 2: have been able to deliver this really stellar increase in prosperity.
Speaker 2: So if you ask Chinese people, are you better off
Speaker 2: than new we are five years ago, which is the
Speaker 2: length of China's presidential term, at almost any point over
Speaker 2: the past forty years, the answer would most likely have
Speaker 2: been yes, I'm much better off than I was. But
Speaker 2: under Jinping the answer is quite a bit more complicated.
Speaker 2: So while average households are still seeing their incomes rising,
Speaker 2: they are rising at a much slower pace than they were,
Speaker 2: and anyone who put their nest egg in say Chinese
Speaker 2: real estate or equities, will have taken a pretty significant hit.
Speaker 2: So Chinese households aren't necessarily feeling richer than they did,
Speaker 2: and in fact, many of them might be feeling poorer.
Speaker 1: There was one moment where that prosperity evaporated at the
Speaker 1: end of the nineteen eighties, where inflation and unemployment shut up.
Speaker 1: That was when we saw a genuine challenge to the
Speaker 1: authority of the Communist Party. That culminated in the bloody
Speaker 1: crackdown at Tieneman Square. So, Rebecca, where are we now?
Speaker 2: Well, we're certainly not in anything like as dire a
Speaker 2: situation as the end of the nineteen eighties. Back then
Speaker 2: we saw real incomes we actually falling, for example. But
Speaker 2: even so we are seeing this shift from a long
Speaker 2: period of rapid rises in prosperity to a much more
Speaker 2: complicated situation where incomes are growing more slowly, wealth is falling.
Speaker 2: And all of that does mean there is a change
Speaker 2: in the social contract or a change in the relationship
Speaker 2: between the Chinese Communist Party and the Chinese people.
Speaker 1: After the break, how President Sheijinping is managing the fraying
Speaker 1: of the social contract. The sound you're hearing is from
Speaker 1: the white Paper movement in twenty twenty two. That's when
Speaker 1: protesters held up blank sheets of paper to oppose COVID
Speaker 1: controls in Shanghai, and it eventually brought a rapid end
Speaker 1: to the lockdown that lasted two months. Since then, there
Speaker 1: has been striking developments in demonstrations in China over the
Speaker 1: past year.
Speaker 2: Freedom Houses China Descent Monitor, for example, calculated that about
Speaker 2: eighty percent of all the protests that they documented for
Speaker 2: twenty twenty three were related to the economy. We're seeing
Speaker 2: an increasing number of protests related to the economic strains
Speaker 2: that people are feeling these days, including failed real estate projects,
Speaker 2: but that isn't bubbling up into widespread protests that present
Speaker 2: any kind of existential challenge to the Party. What's really
Speaker 2: rare to see coordinated widespread protests in China because of
Speaker 2: the sort of tightly controlled nature of society, which is
Speaker 2: heavily surveiled. So typically protests in China's quite small scale,
Speaker 2: is quite sporadic, spontaneous in nature, and it very rarely
Speaker 2: targets the central government or President Shei Jinping himself directly
Speaker 2: with criticism. If we do see criticism of authorities, it's
Speaker 2: more often directed, for example, to local governments or local
Speaker 2: authorities who they may feel have not sufficiently protected them
Speaker 2: against certain risks.
Speaker 1: But Tom says it's important to keep the recent slowdown
Speaker 1: in context. The average Chinese household is still much better
Speaker 1: off than they were, say, forty years ago, and that
Speaker 1: buys the Party a certain amount of goodwill from the people. Plus,
Speaker 1: things are bad, but they aren't that bad.
Speaker 3: We don't have mass unemployment we don't have average incomes falling.
Speaker 3: We don't have a financial crisis. So we're talking about
Speaker 3: a slowdown for many, a stagnation for some, but we're
Speaker 3: not talking about an economic crisis.
Speaker 1: Meanwhile, the Pilot Bureau, China's highest policy making body, is
Speaker 1: signaling that it will take action to help support the economy.
Speaker 3: So in economics, as in fairy tales, the magic number
Speaker 3: is very often three, and I see three planks to
Speaker 3: the Chinese Communist Party's strategy to deal with this new
Speaker 3: problem of slower income growth and falling wealth. The first
Speaker 3: strategy is to stimulate. We're not seeing the big bazooka
Speaker 3: stimulus that we've seen in past Chinese downturns, but Beijing
Speaker 3: has definitely got out a bunch of water pistols, and
Speaker 3: it's trying to doubt the flames in the property sector
Speaker 3: and ensure that incomes and wealth don't fall too far.
Speaker 3: The second part of the strategy is something that political
Speaker 3: scientists call preventative repression. That's the technological panopticon, which gives
Speaker 3: China's one point four billion citizens the strong sense that
Speaker 3: weather they're online or walking on the street, somebody's watching them.
Speaker 3: And the third part of the strategy is what Shei
Speaker 3: Jinpin calls common prosperity. It's the idea that the pie
Speaker 3: is going to grow more slowly, but it's going to
Speaker 3: be shared out in a more equitable way. It's kind
Speaker 3: of a grab bag of different policies, finds for the
Speaker 3: tech monopolies, instructions to the gig economy, companies to pay
Speaker 3: their workers at least a living wage. The crackdown on
Speaker 3: the real estate sector, which is causing enormous pain for
Speaker 3: Chinese economy writ large, but is also bringing down house
Speaker 3: prices and making them more affordable to first time buyers.
Speaker 1: And Rebecca says it's important to remember that the Chinese
Speaker 1: economy has multiple engines for growth. It's not just about
Speaker 1: real estate. She says. The government is eyeing new growth drivers.
Speaker 2: One way to think about the Chinese economy is like
Speaker 2: an aeroplane that has two or four engines, so different
Speaker 2: engines and different things that are driving it. Now. Property
Speaker 2: is one of those engines, but there are other things too.
Speaker 2: There are things like exports that rely on global demand.
Speaker 2: And what we're kind of currently underway is a plan
Speaker 2: by seats in Pying and Buy Beijing to change what
Speaker 2: engines are driving that plane and what is essentially keeping
Speaker 2: that plane up in the air. And as that happens, naturally,
Speaker 2: of course you get quite a bit of disruption. And
Speaker 2: if you're on the plane you look at that property
Speaker 2: engine and it looks like it's on fire. Of course,
Speaker 2: people start to panic, You start to really worry.
Speaker 1: Yeah, And of course it's not going to be helpful
Speaker 1: to tell people not to panic.
Speaker 2: Absolutely, it doesn't help to see one of those engines
Speaker 2: caught on fire. And it's very hard then to try
Speaker 2: and restore confidence. Ultimately, the goal is to get consumers
Speaker 2: back on the streets and spending.
Speaker 1: It's hard to.
Speaker 2: Do that if you see property in the state that
Speaker 2: it is. It's hard to be convince that you should
Speaker 2: go out and invest in a business. But that's not
Speaker 2: to say that, of course, the economy is anywhere close
Speaker 2: to the precipice of collapse, because you definitely still have
Speaker 2: these other engines of growth, and in the meantime, Beijing is,
Speaker 2: of course China institute these other mechanisms. So look at,
Speaker 2: for example, the three new drivers, things like solar panels, evs, batteries,
Speaker 2: where the hope is that they will start to make
Speaker 2: up some of the losses that you're seeing in other
Speaker 2: parts of the economy.
Speaker 1: And to better understand Reagan's question, are you better off
Speaker 1: in the China context, Bloomberg looked at two data sets,
Speaker 1: one on economic growth and another on political freedom. Bloomberg's
Speaker 1: analysis suggests China has come full circle in those two respects.
Speaker 2: So we looked at IMF data on China's GDP growth,
Speaker 2: and we looked at a political science data set on
Speaker 2: freedom in China that includes things like freedom of the press,
Speaker 2: freedom for academics, and freedom to express your opinion public,
Speaker 2: for example. And these two data sets, when you bring
Speaker 2: them together and look at how growth and freedom have
Speaker 2: evolved in China over the last forty years, they tell
Speaker 2: a really striking story. So back at the start of
Speaker 2: the reform era, or even before the reform era began,
Speaker 2: we see that growth was really weak and freedom was
Speaker 2: really constrained. And then if we go through and look
Speaker 2: later during China's leadership under Dengxilping, freedom's expanded and growth accelerated.
Speaker 2: Under Jang Zamin, freedoms remained in place and growth remained strong.
Speaker 2: And then finally under Hujin Tao, you saw the beginnings
Speaker 2: of a slowdown in growth, the beginnings of an erosion
Speaker 2: of social freedoms. Finally, under Shejinping, the erosion of growth
Speaker 2: and the narrowing of social freedoms has continued to the
Speaker 2: point where China has almost come full circle, with growth
Speaker 2: slower and freedoms more strained. Though it is important to
Speaker 2: bear in mind, of course, living standards under President cy
Speaker 2: j In Ping versus under mauzadong a much much higher.
Speaker 1: Thanks for listening to The Big Take Asia podcast from
Speaker 1: Bloomberg News. I'm wan ha. This episode was produced by
Speaker 1: Young Young, Naomi Um, Jessica Beck, and David Fox. It
Speaker 1: was mixed by Blake Maples and fact checked by Adriana Tapia.
Speaker 1: It was edited by Caitlin Kenney, Daniel ten Kate, and
Speaker 1: Ben Holland. There was additional assistants from Emily Cadman, Alan
Speaker 1: Juan Chen Hua When Eric Jue, Jennifer Welch, and Nick
Speaker 1: Hallmark Name with Shaven and Kim Gettlelson are our senior producers.
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