Image: Reuters Berita 24 English - Even if authorities manage to eradicate all new infections, the Chinese beef hotpot restaurant chain Bahe...
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| Image: Reuters |
Berita 24 English - Even if authorities manage to eradicate all new infections, the Chinese beef hotpot restaurant chain Baheli, which only generates a third of the business it had prior to the COVID-19 outbreak, has no plans to resume its growth.
Consumers' lives have been completely upended by China's obstinate pursuit of its "zero-COVID" approach, which goes against a global trend of living with the virus. This is the problem, according to founder Lin Haiping.
Lin, who started his first restaurant in 2008 in the southern city of Shantou and quickly expanded to almost 200 outlets throughout China before closing down a fourth of them owing to COVID, declared that "all business ambitions are postponed."
"People are more likely to save when they believe it is harder to make money. They'll need some time to get over the hurt."
His remarks are a reflection of larger worries about a decline in consumer and corporate confidence in China as harsh COVID restrictions undermine the recovery of the second-largest economy in the world and slow global growth.
According to a Reuters poll, analysts predict that China will grow by 4% this year, which is slower than average by Chinese standards but still higher than most other nations.
It would also be the first time since 2015, when China was severely hit by a stock market meltdown and capital flight, that Beijing's official growth target - set this year at about 5.5 percent - would be missed.
The hardest hit by this economic slowdown is the private sector.
Calls for more rapid government stimulus have increased as consumer confidence is close to record lows, private investment stalled in the first half, and youth unemployment is at a record 19.3 percent.
However, as the ruling Communist Party gets set for a once-every-five-years conference this autumn, where President Xi Jinping is anticipated to earn a record-breaking third leadership term, already significant economic disparities are giving the party issues.
This year, hundreds of millions of Chinese people lived under varying COVID restrictions in dozens of locations, which culminated in Shanghai's complete lockdown from April to May. As the government played COVID whack-a-mole, a variety of firms also closed their doors, sometimes just after being permitted to reopen.
Shanghai-based The trucking industry "is suffering a lot" from COVID-caused logistical constraints, according to Martin Wawra, CEO of Voith Turbo's Mobility subsidiary, a German manufacturer of commercial vehicle parts. Wawra said he must lay off people to break even.
Additionally, growing geopolitical tensions, an expanding real estate crisis, rising borrowing prices in important export markets, and a sweeping assault on the technology and private education sectors are concerns for private businesses.
China's real estate market, which accounts for around 25% of the country's GDP, has seen a run of developer defaults, and an increasing number of customers are refusing to make mortgage payments on stalled projects.
China is experiencing a confidence crisis, according to Rob Subbaraman, head of global macro research at Nomura.
Households are hesitant to spend out of concern about new lockdowns; prospective homeowners have lost faith in taking part in developer presales because they are short on cash; and private businesses are delaying new investments because of the deteriorating outlook for exports and consumption.
FLUFFY PANCAKES
Numerous economists and financial experts attribute the economic downturn to key Xi initiatives, such as zero-COVID and the regulatory assault on "barbaric" expansion in the tech, education, and other industries.
Liu, a 30-year-old employee of an internet company, has seen her salary increase since she started there in 2018. Until recently, she had intended to purchase a two-bedroom apartment.
Liu remarked, using only her last name to talk openly about her employer, "I felt quite sure about my salary."
However, she said that her employer reduced salaries and fired employees as a result of the IT crackdown last year.
Liu decided it would be wise to pay off the mortgage on her current, smaller property even though she wasn't one of the affected people.
Some well-known Chinese economists are calling for the state to take a step back due to the pessimism that the private sector feeds on.
Yao Yang, head of the National School of Development at Peking University, said in a mid-July online forum, "I don't know if regulators and policymakers hear the opinions of our enterprises.
"They continue to manipulate the economy, much like a pancake. How do business owners maintain confidence?"
IMPORTANT TABS
Investors anticipate more assistance from the Politburo, the highest Communist Party decision-making body, at its meeting this week after the government recently announced a slew of tax cuts and subsidies.
In addition to the trillions of yuan invested in infrastructure projects already this year, more debt is anticipated to be issued to finance these more hazardous but necessary projects.
China's macro leverage ratio, which compares total debt to GDP, increased to 277.1% in the first quarter, 4.6 percentage points more than levels expected for the end of 2021.
The most crucial challenge, aside from increasing policy support, is to set expectations and rebuild confidence, according to a government adviser who spoke on the condition of anonymity because the subject is so delicate.
According to experts on policy, Beijing may covertly tolerate slower development without changing the goal.
According to Derek Scissors, a fellow at the American Enterprise Institute in Washington, although politicians could orchestrate a brief "burst of borrowing," the slow economy did not pose an immediate threat to the government.
"What has Xi accomplished as Party Secretary poses a longer-term challenge to his credibility. Although I doubt they will have any impact on this year's Party Congress, these questions will become more acute over the following five years "said he.
