[Beijing Diary] The People's Low-Consumption Resistance

Warnings of an economic downturn are growing in China, which was expected to play a leading role in driving the global economy this year. As recently released economic indicators fell short of expectations, global investment banks (IBs) have rushed to lower their forecasts for China's gross domestic product (GDP) growth rate. Goldman Sachs revised its forecast down from 6.0% to 5.4%, UBS from 5.7% to 5.2%, and Nomura from 5.4% to 5.1%.

What is the reason that the Chinese government's bold reopening bet has effectively failed? Most of the negative factors mentioned in the market, such as prolonged real estate stagnation, intensified US-China conflicts, and increased local government debt, have been exposed externally for a considerable period. The core reason behind China's economic downturn lies in the hesitation of Chinese people to spend money. The government's calculation that cash saved during the three years of zero-COVID would be unleashed with the transition to with-COVID was completely wrong. At this rate, it may become difficult to achieve this year's economic growth target of around 5%, which was based on improved consumption.

[Image source=Reuters Yonhap News]

So why have the people closed their wallets? Considering the context, the recent low consumption phenomenon is a form of self-defense. During the three years of the COVID-19 pandemic, the Chinese government strictly regulated all production and consumption activities but did not directly implement fiscal support like most other countries. At the same time, pressure and regulations on private enterprises continued. According to Foreign Policy (FP), China's private education regulations led to 60,000 layoffs at a single company in 2021, and 14,000 companies closed due to crackdowns on gaming. The efforts to tame big tech companies have not stopped. The youth unemployment rate hit a record high of 20.8%, a figure that even includes part-time workers who worked only one hour per week.

Later, Premier Li Qiang stepped forward to promise active support for private enterprises, but it was insufficient to reassure the market and the people. The People's Bank of China, the central bank, recently cut the loan prime rate (LPR), which effectively serves as the benchmark interest rate, for the first time in 10 months. However, the cut of 0.1 percentage points fell short of market expectations and instead cooled the mood. Money is instead fueling unusual investment markets such as gold and jade. The '6·18 Shopping Festival,' which Chinese online shopping platform JD.com even invited global soccer star Lionel Messi to boost the atmosphere, did not disclose its performance for the first time since its inception due to poor sales.

When a Chinese woman in her 40s working in the education sector was asked, "Why are Chinese people not spending money these days?" she replied, "Because of worries that a disaster like COVID-19 might strike again." Here, substituting the word 'COVID-19' with 'government regulation' would be closer to the truth. In particular, the past regulations stemmed from specific ideologies and political reasons rather than market economy logic, which has increased anxiety. The Chinese people no longer seem to have the capacity to bear such uncertainty and risk. Unknowingly, the people are resisting the imposed system through 'low consumption.' This is the most active form of resistance they can undertake to protect their own well-being.

This content was produced with the assistance of AI translation services.