China's Shocking H1: 460K Businesses Closed, 5M Officials at Layoff Risk, 800M People in Debt

In 2023, China's economic landscape has experienced significant shifts. Prominent enterprises including Country Garden and Suning Electronics have grappled with unparalleled financial and operational challenges this year. The landmark event was the collapse of Xin'an Electronics in Shenzhen on August 18th. This reflects not just the decline of a single company, but is also a microcosm of the overall contraction of China's consumer market. The sectors of foreign trade, real estate, stock markets, and banking are facing immense pressure and challenges. All of these have caused China's economy to plunge into an unexpected sharp downturn. The liquidity in the real estate market is extremely poor, with further declines anticipated. Across various industries, layoffs and salary cuts are becoming increasingly frequent, leading to a significant reduction in disposable income for everyone from the middle class to the general populace. Business owners who used to earn millions a year are now struggling in a sluggish commercial environment. Some have even turned to driving taxis. Live-streaming e-commerce, once a booming industry, now only benefits the top-ranking bloggers. Many fashion bloggers who used to earn a decent income have seen their revenues halved this year. In a climate of uncertain income, many families have clear priorities. Food, children's education fees, medical expenses, and that long-awaited summer vacation saved up for over three years during COVID. These are non-negotiables. What can be cut are those small appliances like electric dryers, beer makers, knife sharpeners, coffee pots, tea brewers, can openers, curling irons, and toaster ovens. Chinese people no longer have extra money to spend, at least not the vast majority who fall below the middle class. Today, our focus is on this very group, those below the middle class. Amidst the ongoing economic slump, we investigate their perspectives and challenges. Traditional businesses like Sheen and Appliances are laying off workers, and the first to be hit are the low-level, less-educated laborers. Their monthly earnings are usually around 5,000 to 6,000 yuan. If laid off, they could find work in other factories, but the pay remains the same, only intensifying their desperation amid the current economic climate. Take this couple in their 50s, for instance. They invested 1.5 million yuan in a property that eventually turned into an unfinished construction project. Being average wage earners, their influence is limited in pushing for the resumption of the construction. Consequently, they continue to bear the burden of the mortgage. Since shouldering this million-yuan loan, this middle-aged couple hasn't indulged in the luxury of travel or even dining out. Paying off the million is mandatory, but the property still hasn't been delivered. This harsh reality has led them to reevaluate life's brevity and resolve to live more freely. They decided to eat out for once, releasing a pent-up emotions and dissatisfactions. 1.5 million dollars can take you on a trip around the world, sampling delicacies from every corner. But today, all my wife wants is to go out for a meal, just to lift her spirits. If 1.5 million is gone, what's a meal in the grand scheme of things? Perhaps life has shown us its true colors. Yesterday marked the beginning of autumn. We ordered potstickers, grilled skewers, a few side dishes, and my beer. Just the two of us discussing life and contemplating the future. Young people just a few years out of college and making an annual income of 200,000 yuan, approximately 27,000 US dollars, are struggling immensely in the current economic downturn. Many can't even scrape together 3 or 4 thousand dollars in savings. Before 2020, they earned about 17,000 to 18,000 yuan a month. This is around 2,300 US dollars. Mortgage and car loan payments eat up 7 to 8 thousand yuan, plus 3 to 4 thousand yuan for daily expenses. After considering utilities and child care costs, hardly anything is left. Their salaries have dipped during the three-year pandemic, draining their previous savings and leading them into debt. Now, every time their phones ring, they tense up, fearing it might be a creditor calling. My husband broke into tears while discussing this, saying that nowadays, even 2 to 3 thousand dollars is hard to come by. A grown man crying and venting for over half an hour. According to official Chinese statistics, nearly 700 to 800 million people are burdened by debt, with about 300 million facing difficulties in repayment. Many businesses are floundering, grappling with pay cuts or even layoffs as brick-and-mortar stores close their doors. It is incredibly challenging for all industries to operate. The youth unemployment rate has skyrocketed to 46.5%, leading the National Bureau of Statistics to halt the release of unemployment data. The Chinese Communist Party doesn't want the public to know, as the youth unemployment rate could be an indicator for unemployment across all age groups. In such an economic climate, young people who once loudly talked about career advancement and salary growth during economic booms are toning it down. Most of these people earn below the middle-class threshold, but with no heavy financial burdens, they've chosen to be less ostentatious. Gone are the days of flaunting new luxury purchases or recent travel adventures. Now they opt for a downscaled lifestyle, slowing down to rest and lie flat. Lie flat represents a concerning trend among Chinese youth, who are choosing to disengage and relinquish their ambitions, opting for apathy and inactivity in the face of perceived societal pressures and diminishing opportunities. And what about China's middle class? They're families with assets ranging from 10 to 20 million RMB, nearly half of which is invested in the property market. With liquidity drying up, even discounted real estate is hard to sell, eroding the value of their mortgaged assets. Factor in the risk of layoffs, and these families become extraordinarily cautious with their spending. Daily expenses like tourism, dining out, and fitness have seen a sharp decline. Take Tarot Wellness as an example. It was once a celebrated Chinese top-tier gym chain with state-of-the-art equipment, temperature-controlled pools, and top industry trainers. It attracted influencers and celebrities alike. To cater to high-end clients, they even offered unique experiences, like temperature-control equipment on par with NBA players. But as many international companies pull out of mainland China and income tightens for local employees, many can no longer afford the steep membership fees. As a result, starting this August, the chain had to close multiple locations in mainland China. Families with assets in the millions or even tens of millions are also struggling to afford education for their children. An international bilingual school, for instance, saw its income plummet to just 25% of its annual intake. Some parents are even asking for deferred tuition payments. In first-tier cities like Shanghai, even upper-middle class families with an annual disposable income of 1.4 million yuan and 20 million yuan in assets are feeling the pinch. One parent in Shanghai revealed that he spends as much as 600,000 yuan per year just on education for his two children. Add in daily expenses, mortgage payments, and the cost of supporting his parents, and he's almost maxed out his annual disposable income, which is around 1.3 million yuan. His biggest fear is unemployment, as the loss of income would endanger everything from mortgage and car loans to his children's education. To brace for hard times, he's trying to sell office space he owns in Shanghai, but with the market downturn, even drastic price cuts have failed to attract buyers. Some netizens suggest that he sell his Shanghai property and move to a second-tier city, sending his children to regular schools. By doing this, his liquid assets could potentially rise to 10 million yuan while reducing annual expenses by half. In theory, this would be enough to see his children through college. However, this parent is in a dilemma. The children, having attended international schools, would find it difficult to adjust. Additionally, losing their Shanghai residency would close doors to international schooling, affecting their future social standing. In a southwestern Chinese city, a 30-something entrepreneur who runs an educational startup center is just breaking even this year, compared to a 40% annual growth in previous years. Though he still has 10 million yuan in liquid assets, he's cut his monthly expenses down to 5,000 to 6,000 yuan. The property he invested in has stalled, and he's still paying the mortgage. He tried his luck in the Chinese stock market, but unfortunately hit a bear market, losing his investment. To make matters worse, even the bank interest rates on his savings are lower than before. His assets are shrinking rapidly. Nationwide, even civil servants, a profession once considered economically stable and reliable, are not spared. Salaries have generally decreased by 20 to 30%, even more so for those in Shanghai. Salaries have dropped from 240,000 to 150,000, from 350,000 to 200,000, with a reduction rate of around 40%. With such drastic pay cuts, consumer spending will decrease, and so will the prices of goods and services, making deflation more apparent. What's even more worrying is that to allow 12 heavily indebted provincial governments to pay off their debt interests, the central government decided on August 22nd to permit these areas to issue $1.5 trillion in special refinancing bonds. The condition is that local governments must cut 20% of public servant positions. Preliminary estimates suggest that nearly 5 million people will lose their jobs across these 12 provinces, taking a significant chunk out of China's consumer spending power. Statistically, things look even worse. Flexible employment already makes up about a quarter of the national workforce, totaling 220 million people. Their incomes are not stable, limiting their spending power. Meanwhile, just in the first half of this year, as many as 460,000 companies have shut down, and 3.1 million individual businesses have chosen to deregister. A staggering 800 million Chinese people are facing debt, vividly illustrating the economy's downturn. Nationally, the best regions are the Yangtze River Delta, followed by the Greater Bay Area and Shenzhen. Aside from Beijing, the Beijing-Tianjin-Hebei area isn't doing so well. It's pretty much a consensus. The following are the heartfelt voices of ordinary people sharing their struggles with making a living. Too much competition. For us migrant workers, life is a mix of ups and downs, joys and sorrows. Too tiring, extremely exhausting. The pressure is immense, painful. Extremely hard. In 2020 or 2021, I could make over 300 yuan just by delivering food for four hours. Now I have to run around for 15-16 hours to make the same amount. The current economic environment is so bleak. Many people are setting up street stalls, but there are very few customers. Money is incredibly hard to earn. Recent insights from Chinese citizens provide a first-hand view of the nation's macroeconomic challenges. Data suggests an unexpected and rapid downturn in China's economy, surpassing prior forecasts. Key sectors, including the stock market, real estate and banking, are reportedly facing significant disruptions. By the end of August, a staggering 4,850 stocks have plummeted, impacting critical sectors like aerospace, photovoltaic equipment, metal energy, shipbuilding, and securities real estate. Many major state-owned enterprises have hit their limit down, such as Pacific Securities, China National Software and Service, Sino Steel Jilin Carbon, China Railway, China Communications Construction and China Sonoma International Engineering. State-to-state enterprises integral to the CCP, such as China Railway Group and Power China have also seen significant drops in their share prices. The Shanghai Composite Index remains approximately at the 3,000-point mark, with sporadic fluctuations posing challenges for retail investors. Over the past 20 trading days, China's stock market saw a staggering net outflow of over $10 billion per day. While state media personalities like Hu Xijin encouraged the public to buy stocks, most people aren't buying it, literally. They note that while the Chinese stock market has stagnated for 20 years, India's has grown 20-fold. In 2003, India's stock market index was 3,600 points, and China's was 3,000. By 2013, India had surged to 20,000, while China was still stuck at 3,000. Now in 2023, India has climbed to 67,600 points, while China still remains in a defensive battle around 3,000. The real estate market tells a similar story. It's a buyer's desert. The general fear is that if people rush to buy properties and prices soar, the Chinese Communist Party might introduce a real estate tax. Such expectations have left properties unsellable. The latest figures show that real estate now accounts for a third of China's economy. This is a third that has essentially frozen over, along with its upstream and downstream industries. What, then, can revitalize China's economy? Things look equally grim for China's banking sector. Bad loans have piled up from lending to urban investment companies, real estate businesses, local governments, and high-speed railways. Meanwhile, Xi Jinping has explicitly stated that the banking sector must go through a deleveraging process similar to real estate, signaling an unwillingness for large-scale infusions of capital. Some experts suggest that stabilizing the banking and real estate sectors might require issuing tens of trillions of yuan, possibly even devaluing the yuan to about 10 yuan against one US dollar. But if the yuan devalues to 7.7, it would be on par with the Hong Kong dollar. Any further devaluation would mean a yuan worth less than the Hong Kong dollar, a significant loss of face for the Chinese Communist Party. In such a context, if banks become risk-averse, start pulling loans, or refuse to renew them, this could drastically reduce the supply of credit and stall the economy. Simultaneously, Wall Street's attitude toward China has palpably shifted. On August 23, Goldman Sachs warned that China's economy is progressively entering a recession and advised investors to exit Chinese assets. Many observers and analysts now broadly agree that the speed of the CCP's decline has exceeded expectations, a view that has become a consensus. So why did we start this video with the collapse of Xin'an Electronics? While the demise of a single company may seem trivial compared to the decline in the stock market, real estate, and banking, it's these small details that offer everyday people a direct experience of macroeconomic decline.