China’s economy struggles: Consumer confidence at 30-year low - Reports

The world’s second-largest economy is in significant trouble. Bloomberg reported on August 14 that “China’s economy is plodding along in the absence of a consumption spark.” This concern was confirmed the following day when China’s National Bureau of Statistics released its monthly data. Reuters noted on August 15 that “China's factory output slowed for a third straight month in July, indicating that the recovery in the world's second-largest economy was losing momentum.” Despite efforts to stimulate demand through ultra-cheap loans and substantial monetary injections, consumer confidence remains at a 30-year low, with retail demand crawling at 2-2.5%.

The marginal growth in July was largely due to a low base effect. The economic outlook is so grim that marriage rates are plummeting. CNN reported on August 15 that in the first half of 2024, only 3.43 million couples married—half the number recorded for the same period a decade ago, according to the Ministry of Civil Affairs. In response to this troubling trend, Beijing released a decades-old family video of Xi Jinping and his wife to boost morale.

However, many young Chinese have taken to social media to complain about their inability to afford marriage due to debt and financial stress. Economic strain is also leading to social unrest. Nikkei Asia reported on August 12 that labor disputes have surged in China’s property and manufacturing sectors as economic growth slows. Though state-controlled media rarely report on unrest, signs of public discontent and hardship are emerging.

The Hong Kong-based NGO China Labour Bulletin reported 818 strikes in the past six months, primarily in industrialized eastern China. The impact of economic fatigue is evident in inflation numbers. While global inflation has been driven up by supply chain disruptions and cash handouts, China has experienced near-zero inflation for approximately 18 months, reflecting a severe lack of demand. The average Chinese citizen has lost hope, leading to reduced consumption and a downturn in the property market, which once contributed a quarter of GDP before the pandemic.

In July, new home prices fell 4.9%, hitting a nine-year low, and have been declining for 13 consecutive months. A July 2024 S&P report predicted a 15% year-over-year drop in property sales for 2024, to a range of 9.5 trillion to 10 trillion yuan—nearly half of the 18 trillion yuan peak in 2021. Investment in stocks is also dwindling.

The CSI300 stock index has been in free fall since 2022, currently below its pandemic-era dip. An estimated $7 trillion in investor wealth has been wiped out over three years, and global investors are rapidly reducing their exposure to China. A record $15 billion was withdrawn from China in the April-June 2024 quarter alone, with the outflow during January-June exceeding the inflow by $5 billion. The broad loss of faith in the Chinese economy is evident.

The exodus of foreign investment is likely to impact future growth, and the once-renowned export economy faces long-term challenges. Chinese banks are selling 10-year government bonds at a deep discount in the secondary market, which reduces bond yields and affects their attractiveness. This could hinder Beijing’s future ability to raise debt. The Xi Jinping administration has imposed strict measures to curb such sales, which Bloomberg reported on August 13 as a new extreme in cracking down on bond-market activity. These measures could further erode investor confidence.

Although the average Chinese may not fully understand the bond market’s complexities, they are acutely aware of the country’s economic difficulties. Consequently, they are cutting expenses and investing in gold, with demand for gold bars and coins rising by 46% in the first half of 2024. This reflects a historical strategy of protecting personal wealth during times of economic uncertainty. In the past, people would convert their assets into bullion and hide it to safeguard their wealth during conflicts.

Today, the sustained decline in stock indices and property prices indicates severe economic distress, leading many Chinese citizens to turn to gold as a last resort to preserve their wealth.