China’s Economic Bump Fades but Not Worry Over Jobs and Property Prices

From consumers to officials, most in China remain on edge about the economy despite surprisingly robust first-quarter numbers.

The skepticism comes from a population whose economy has continually failed to meet rebound expectations for so long that they seem to have all but given up.

The weariness seems warranted. Most of the first quarter’s growth was frontloaded, and newer gauges of the economy’s key sectors show the bump has since faded.

Also worrisome is job security—particularly among younger Chinese, for whom the unemployment rate is near 20%, and employers have enormous leverage to fire and rehire from a large pool of fresh applicants.

Multiple independent contractors told Barron’s they have significantly less work than in the past. “For myself and most of my friends in this area, we just aren’t as busy as we were before the pandemic,” Xiao Gai, a 32-year-old art director from the western metropolis of Chongqing, said in a telephone interview.

Toward the end of the quarter, in March, growth in retail sales weakened and industrial output disappointed, both missing forecasts. Not only does this show that crucial parts of the economy remain weak, but it includes areas that Chinese leaders have long wanted to transition toward for healthy growth, such as domestic consumption.

Moderate overseas demand is keeping China’s manufacturing afloat, but factory prices have besmirched this bright spot. Prices have been in decline for more than a year, and the latest numbers showed that the economy is falling further into deflation.

China’s deflation reflects weak domestic demand but also fuels it. That’s one reason buyers have kept their pocketbooks closed in an economy that simply cannot kick-start domestic consumption.

Another key source of paltry domestic spending remains weak consumer confidence. Chinese would-be shoppers still feel that the economy and their jobs are insecure. A big part of this is the now four-year-old decline of the property sector.

China’s property sector accounts for roughly a quarter of the economy, and it has been the biggest drag on the economy since a liquidity squeeze and falling prices began in 2001.

New-home prices in March were down 2.2% from a year earlier—the biggest fall since August 2015, and worse than February’s 1.4% fall—according to NBS data.

Not only does the real estate industry account for a massive portion of GDP, but it’s where most Chinese—70%, by some estimates—store their savings. With the falling values of people’s properties, they are even less likely to spend.

“If housing prices and pensions keep shrinking, I wonder what kind of security I will have in my 70s,” said 58-year-old Zhong Weiyi, who owns an auto dealership just outside the sprawling western city of Chengdu, China.

There are signs the government may be ready to act beyond the piecemeal measures of the past year. The problem is that these still don’t seem to be targeting demand-side factors such as helping consumers feel more inclined to spend.

Instead, they remain targeted at manufacturing and infrastructure investment. For instance, China has been purchasing commodities at a greater rate, prompting analysts to wonder whether Beijing is preparing to deploy the so-called economic nuclear option.

Devaluing the yuan is widely seen as a “nuclear option” due to the waves it would send across the rest of the world. By purposely devaluing the yuan, China could stimulate exports by making its products cheaper and more competitive. But this risks provoking serious repercussions from trade partners, and the measures could potentially do as much harm as good.

“China is preparing for something major. That seems increasingly obvious judging from the stockpiling of important resources.” Andreas Steno Larsen, CEO of Steno Research, wrote in a recent note.

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