https://www.nytimes.com/2023/08/25/business/china-economy-confidence.html

China’s economy, which once seemed unstoppable, is plagued by a series of problems, and a growing lack of faith in the future is verging on despair.

Earlier this year, David Yang was brimming with confidence about the prospects for his perfume factory in eastern China.

After nearly three years of paralyzing Covid lockdowns, China had lifted its restrictions in late 2022. The economy seemed destined to roar back to life. Mr. Yang and his two business partners invested more than $60,000 in March to expand production capacity at the factory, expecting a wave of growth.

But the new business never materialized. In fact, it’s worse. People are not spending, he said, and orders are one-third of what they were five years ago.

“It is disheartening,” Mr. Yang said. “The economy is really going downhill right now.”

For much of the past four decades, China’s economy seemed like an unstoppable force, the engine behind the country’s rise to a global superpower. But the economy is now plagued by a series of crises. A real estate crisis born from years of overbuilding and excessive borrowing is running alongside a larger debt crisis, while young people are struggling with record joblessness. And amid the drip feed of bad economic news, a new crisis is emerging: a crisis of confidence.

A growing lack of faith in the future of the Chinese economy is verging on despair. Consumers are holding back on spending. Businesses are reluctant to invest and create jobs. And would-be entrepreneurs are not starting new businesses.

“Low confidence is a major issue in the Chinese economy now,” said Larry Hu, chief China economist for Macquarie Group, an Australian financial services firm.

Mr. Hu said the erosion of confidence was fueling a downward spiral that fed on itself. Chinese consumers aren’t spending because they are worried about job prospects, while companies are cutting costs and holding back on hiring because consumers aren’t spending.

In the past few weeks, investors have pulled more than $10 billion out of China’s stock markets. On Thursday, China’s top securities regulator summoned executives at the country’s national pension funds, top banks and insurers to pressure them to invest more in Chinese stocks, according to Caixin, an economics magazine. Last week, stocks in Hong Kong fell into a bear market, down more than 20 percent from their high in January.

[...]

On Sunday, August 27, 2023 at 2:16:05 PM UTC, bmoore wrote:
> https://www.nytimes.com/2023/08/25/business/china-economy-confidence.html
>
> China’s economy, which once seemed unstoppable, is plagued by a series of problems, and a growing lack of faith in the future is verging on despair.
> Earlier this year, David Yang was brimming with confidence about the prospects for his perfume factory in eastern China.
>
> After nearly three years of paralyzing Covid lockdowns, China had lifted its restrictions in late 2022. The economy seemed destined to roar back to life. Mr. Yang and his two business partners invested more than $60,000 in March to expand production capacity at the factory, expecting a wave of growth.
>
> But the new business never materialized. In fact, it’s worse. People are not spending, he said, and orders are one-third of what they were five years ago.
>
> “It is disheartening,” Mr. Yang said. “The economy is really going downhill right now.”
>
> For much of the past four decades, China’s economy seemed like an unstoppable force, the engine behind the country’s rise to a global superpower. But the economy is now plagued by a series of crises. A real estate crisis born from years of overbuilding and excessive borrowing is running alongside a larger debt crisis, while young people are struggling with record joblessness. And amid the drip feed of bad economic news, a new crisis is emerging: a crisis of confidence.
>
> A growing lack of faith in the future of the Chinese economy is verging on despair. Consumers are holding back on spending. Businesses are reluctant to invest and create jobs. And would-be entrepreneurs are not starting new businesses.
>
> “Low confidence is a major issue in the Chinese economy now,” said Larry Hu, chief China economist for Macquarie Group, an Australian financial services firm.
>
> Mr. Hu said the erosion of confidence was fueling a downward spiral that fed on itself. Chinese consumers aren’t spending because they are worried about job prospects, while companies are cutting costs and holding back on hiring because consumers aren’t spending.
>
> In the past few weeks, investors have pulled more than $10 billion out of China’s stock markets. On Thursday, China’s top securities regulator summoned executives at the country’s national pension funds, top banks and insurers to pressure them to invest more in Chinese stocks, according to Caixin, an economics magazine. Last week, stocks in Hong Kong fell into a bear market, down more than 20 percent from their high in January.
> [...]
What's wrong with the Chinese economy?

When China was in the throes of the COVID-19 pandemic, doomsayers had a field day predicting its imminent collapse. China recovers from the pandemic much better than many of those doomsayers' own countries. Yet it's boom time again for China's doomsayers. This time its the Chinese economy.

"The Chinese economy is collapsing", "China's impressive growth is ending", "The Rise of China has turned downwards, "The China Model is proving to be wrong", etc..

Is it really that bad?

Since its opening up in 1978, China's a free-market economy with a mix of state- and private-enterprises. Like any free-market economy, it has its boom and bust cycles.
Right now it's in a bust cycle. In an economic bust cycle, speculative sectors such as properties and stocks tend to suffer more. This is the market mechanism to weed out the weak and over-speculative parts of the economy. The economy will come out the better after this.

Another reason for China's current economic malaise is due to its 'Factory of the World' model. This is low-tech, low-pay, labor-intensive, with large foreign investments. These factories are easily transferable to other parts of the world. This makes China's economy vulnerable to foreign manipulations. China's economy must emphasise the innovations to provide the high-techs to feed the low-tech stages.

The long term problem that the Chinese economy faces is this:

China's economy is predicted to overtake that of the US to become the Number One in the world. This makes China a Strategic Competitor of the US. For this reason, the US is using every means possible to prevent China's economy from going global. Central to this strategy is to curtail the growth of Chinese high-tech industries. This is the same strategy that was used to deal with Japan's world leading economy in the 1980s and 1990s

The excuses used by the US to mask its unfair competition against China.
1. National security.
2. To reduce the risk of being highly dependent on China in the supply-chain.

What should be Chinese Economic Strategy in the long term?

Long term
1. Going global.
The Chinese economy must strive to go global. The Chinese government must help to open doors for Chinese trade, investments and products, globally. It must overcome any internationally organised resistance to the global outreach of its economy. This is going to be difficult for China in a World Order dominated by the US but it has no other choice. Otherwise it will end up like Japan in the 1980-1990.

3. Innovation
Besides going global, the Chinese economy should be driven by innovation.. Innovations that contribute to more competitive products in terms of technology, price and quality. Such Chinese products will not only be consumed locally but also globally.

After causing the Japs economy to falter in the 1980-1990, the Westerners blamed it on lack of domestic consumption. Similarly, they now blame the Chinese for not spending enough. Domestic consumption is not the "cure". Taking this prescription would lead China into a trap of its enemies. If China cannot produce competitive domestic products, consumption would mean consuming foreign products. Chinese money would be flowing mostly one way, i.e., out of the country. This is not going to make any nation's economy strong.

In summary, the Chinese economy has to be innovative enough to produce competitive goods and sell them to the world. The Chinese government has to ensure that no country is unfairly closing its market to Chinese goods.

"Going Global Against Unfair Competition with Innovation". That's the slogan.