This text is taken from Courrier de l’ économique. Click here to subscribe.
The year that is beginning in China will be placed under the astrological sign of the dragon. Highly visible in the country, where it symbolizes power, prosperity and success, the formidable imaginary animal will have a lot to do in an economy which is struggling to bounce back after difficult years and which is having even more difficulty transitioning to the next stage of its development.
The Lunar New Year celebrations are set to be “historic” this year, Chinese authorities predicted. Spanning around forty days, from January 26 to March 5, these first real celebrations since the COVID-19 pandemic should notably lead the Chinese to make 9 billion trips. They have already resulted, in January, in a 20% increase in online sales compared to the same date last year, reports the Financial Times.
A wake-up call among consumers would be a breath of fresh air given their rather gloomy mood of late. However, there are fears that this festive spirit will quickly pass, with three-quarters of respondents to a Morgan Stanley bank survey saying they have reduced their lifestyle in the last six months and less than half expecting that their finances soon improve.
This is because the Chinese economy is not doing well. Its rebound at the beginning of last year following the lifting of measures to combat COVID-19 did not last. Main engines of growth, the real estate sector will not soon emerge from the slump into which the bursting of a speculative bubble plunged it, investments in infrastructure are weighed down by the debt of local governments and exports are suffering from the decline. hit by the global economic slowdown and the rise of protectionism, explained, two weeks ago, The Economist.
Households that protect themselves
All that remains is consumers, who accounted for 80% of economic growth last year, the highest proportion since 1999, but whose morale quickly fell back on their heels, recently highlighted Oxford Economics. They are not the only ones: the Chinese stock market has lost US$7,000 billion since its peak in 2021, or 35% of its value, compared to an increase of 14% in the United States and 60% in India.
Often not very well paid, taxed more heavily than the rich and poorly protected by a narrow social safety net, the average Chinese was naturally inclined to save even more than he already did, notes The world. The latest news was that this precautionary savings amounted to almost a third of its disposable income, thus contributing to a decline in demand which translated, in January, into a fall in prices (deflation) for a fourth month in a row , never seen since the financial crisis of 2007-2009.
Long above 6%, annual economic growth in China was expected to decelerate to 5.2% last year, and it is expected to slow further, to 4.7% this year and to 4.2%. in 2025, the OECD recently predicted. This trend should then continue to give a rate of 3.4% in 2028, according to the IMF. In addition to the normal limits of the growth rate of an economy that has become the second largest in the world, this longer-term decline reflects, among other things, weak productivity growth as well as accelerated aging of the population, socio-economic factors, such as the cost of living, the professional aspirations of women and the unequal sharing of family tasks, having the same effect today as the old law which set a limit of one child per woman.
A slow evolution
The gradual replacement of the “three old” industrial engines of furniture, clothing and household appliances by the “three new” of electric vehicles, batteries and solar panel cells will not change anything. China may well represent 23%, 52% and 83% of global exports for these three types of products in 2022, but all it will gain is to remain locked into a model focused on manufacturing exports and to fuel protectionism. of the West, believes Oxford Economics.
Rather, China should move closer to normal developed economies, where domestic consumption accounts for at least 70% of gross domestic product. This has also been the government’s declared objective for almost 20 years, recalls The Economistbut it does not really come close, this proportion having gone from 55% in 2004 to 53% today.
Beijing’s distrust of foreign interests, the growing weight of inefficient state enterprises, ideological rigidity and the mania for controlling everything will do nothing to resolve the productivity problem of the Chinese economy, deplored in The echoes the American economist Stephen Roach, long defender of Chinese “market socialism”.
Meanwhile, since it is considered auspicious to be born under the sign of the dragon, the country may enjoy a small baby boom this year. But this, like the expected rebound in consumption in the coming weeks, will not last either, warns the Peterson Institute for International Economics.