Andrew Singer Talks About China
Vol. 3, Issue 10
China’s Economic Stories (Part I)
I wrote recently that we should dig deeper and consider other sides of the story when discussing China. Today I begin Part I of III over the next week applying this to China’s economy. There are deeper layers than mainstream news headlines and articles repetitively dwell on in America. This Issue looks at domestic migration and population.
Economy of China (www.finance-glossary.com)
INTRODUCTION. Stories about a coming economic collapse in China have proliferated for years. According to the New York Times this month, “China’s economy is confronting a crisis unlike any it has experienced since it opened its economy to the world more than four decades ago.”
The problems facing the world’s second-largest-by-a-large-margin (based on GDP) economy are indeed real, particularly since Covid. The high-flying real estate market (was) popped. Local governments are drowning in shadow debt. The central government squashed private enterprises and is now trying to ease back. Foreign investment has crumbled. The population is shrinking. Unemployment is high. Demand is low.
I agree that all of the above are onerous and exigent issues; however, this should not lead causally to a conclusion that China’s economy is on the verge of falling over a precipice. While a popular storyline, it has repeatedly proven to be, at best, superficial, not-to-mention something no one should want to see happen because the ripple effects throughout the connected world would be devastating.
China’s economy should not be pigeonholed. It is a lot like America’s. It is large. It is complex. It is global. Some segments hum along, while others sputter. It is tugged and pushed by numerous factors and factions. A big influence currently plaguing China’s technical economy is the human element, i.e., how are the people feeling? Confidence is make or break, and confidence among the middle class in China has been hammered.
So what is another side of the story?
Shenzhen Urbanized Village (photo by Li Zhenxing, The Nature Conservancy, www.theguardian.com)
MIGRATION. China’s population is on the move. The go-go, go-to, first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen are losing their allure for many due to spiraling high costs (housing, education, debt maintenance, daily life), employment hassles and burnout, and fading opportunity. This has in turn led to relocations by individuals and companies out to other cities elsewhere in the country searching for a better standard of living for themselves and their employees and brighter futures.
Local governments are encouraging the trend.
“With the desire for stability growing amid an increasingly tough job market in recent years, more young Chinese adults…are being lured by [government-led initiative aimed at supporting grass-roots organisations in rural areas] and seeking long-term employment in less-developed regions, contributing to a trend reminiscent of the Down to the Countryside Movement in the Mao Zedong era.”1
Xuzhou City, Jiangsu Province (photo by Sprt98 on commons.wikimedia.org)
Businessman and writer Robert Wu visited a lively Xuzhou, Jiangsu Province (population 9,000,000) and wrote that
“there are headwinds in the economy for sure, but living in a first tier city like Shanghai and Beijing (which were hit hard by letdowns in real estate and capital markets) can blind people from seeing the realities of vast hinterland regions….The bigger reality is, in most regions of China, people might be more cautious, but they are still out enjoying themselves. Businesspeople are still working hard and not lying flat. The economy can’t get too bad with this kind of people who cherish work and life at the same time.”2
Beijing children (photo by ran-liwen-unsplash)
POPULATION. No one argues any longer that China’s population is not shrinking. Young people are simply not having many or more children despite exhortations from the government. Though not unique to China, what does this mean in practice?
It means that an aging population needs to work and pay into the system longer.
China set low retirement ages for men and women in the 1950s, staggered between 50-60 years of age. For seven decades these retirement ages did not change. The government has long known they needed to be raised, but it was, is, and will be a politically sensitive topic.
And yet, China this month finally announced that the retirement ages for men and women will rise, albeit slowly and not all that high.
“The retirement age will be gradually increased over the next 15 years. For men, it will rise to age 63, from 60. Female managers will work until 58, instead of 55. And the working years of non-managerial level female employees will be extended to 55, from 50.”3
On the pension side of the ledger, the government also announced that beginning in 2030, “the minimum years of basic pension contributions required to receive a pension after retirement will be gradually raised from 15 years to 20 years at the pace of an increase of six months annually,….”4
(www.table.media)
The new policy announcement has generated a lot of responses from the public, many (most?) of which have already been censored. There is frustration, resignation, and suspicion. There was also this sarcastically witty take:
When I was born, they complained I was one of too many; when I gave birth, they complained that I didn't bear enough children; when looking for a job, they complained I was too old; when retiring, they complain I'm too young.
(生我时嫌我多，我生时嫌我少，找工作嫌我老，等退休嫌我小, translated by Andrew Methven, realtimemandarin@substack.com)
The road will not be smooth, but a necessary decision has been made and it is a start.
***
Part II will look at another side of the investing story.
Can’t wait for Part 11 & Part 111……..
Great Part 1….
RL
Thanks for a warm human story.