China, the country was called the economic wonder of the world for years. Every year the country showed extreme growth figures. In fact, it was thought that China could overtake the United States as the world’s largest economy. That’s still not out of the question, but it probably won’t happen any time soon.
China is in serious economic trouble. And these problems are felt by many Chinese. “More than half of the population,” is the estimate of correspondent Roland Smid. “And half of the Chinese, then you end up with more than 700 million people.” There are young people who are forced to return to live with their parents, people who have not received a salary for months and government institutions that have been stripped bare during the corona crisis.
Project developers are borrowing money en masse
First more about the problems that China is facing. “The biggest problem is the real estate sector,” says correspondent Smid. “It is extremely important for the Chinese economy. It is the sector that has brought China many economic successes since the early 1990s. From that moment on, Chinese project developers have borrowed a lot of money to finance their projects.”
“That has resulted in modern apartment complexes and slick shopping centers. That went well for a long time and house prices continued to rise. But the further prices rose, the greater the fear that the bubble would burst. That would be disastrous. The project developers have borrowed money. If the housing market collapses, they are immediately bankrupt.”
And so the Chinese government wants to shrink the bubble, hoping that this will prevent the bubble from bursting all at once. In other words: a gradual decline in house prices rather than a total collapse. “But that has major consequences for construction workers, people who install air conditioning or water pipes or anything related to construction. Many of them have to hand in their salaries, developers have no money left and civil servants are sometimes not paid for months.”
Rich Chinese are ‘over the top’
There are also ideological reasons for restricting the real estate sector. “Real estate owners have benefited enormously from the booming business in recent years. They became very rich and the Chinese are quite ‘over the top.’ They start buying houses in France, they buy ten Ferraris at the same time in all the same color and in offices and houses you suddenly see marble and chandeliers everywhere,” says Smid.
And yet there are also many Chinese who can hardly make ends meet. “The difference between rich and poor is very large. That does not fit with the ideology of President Xi Jinping. Based on his communist ideas, he wants wealth to be distributed more fairly. An increasingly rich real estate sector does not fit with that.”
Another cause of the economic problems is the corona crisis. Many local governments have had to spend a lot of money over the past three years due to President Xi’s zero-Covid policy. Millions of people sometimes had to be tested daily. All the materials needed for this had to be paid for by those local authorities.
Useless laboratory
“I recently visited a university,” says Smid. In China it is good practice for students to also live on campus. Students were therefore locked in their rooms during the lockdown periods. The local government instructed the university to test students daily and to set up a laboratory for this purpose. It had to be used every day and that cost a lot of money. Now that laboratory is in ruins, because the university has no medical faculty and can therefore no longer use it.”
Cutbacks need to be made everywhere. If you work at such a university or for another government organization, you can in some cases be penalized for your money. “You certainly don’t have to count on a salary increase, that’s what people are told,” says Smid. “And if you don’t get paid anything at all, you often have no choice but to continue working.”
“There is no point in striking. That is not allowed in China. Moreover, it is risky, because it reduces the chance that you will ever see any of the money you are actually entitled to. So people continue to work, hoping that they will ever see anything again.”
From city to countryside
People are therefore looking for other ways to raise or save money. Many young people return to their parents, often in rural areas. “The costs of living there are a lot lower than in the city. The poor people who live there are already used to, for example, growing vegetables or carrying out repairs, things that you have to pay for in the city. A returning child then represents a financial usually not a problem.”
Finally, lotteries in China have become increasingly popular lately. And while they are actually prohibited. “Only the Chinese state lottery type is allowed. A week ago they announced that there has been an increase in the number of tickets sold. People are looking for a way to get something extra. However, with so many Chinese, there is a chance that you gain something very small,” says Smid.