Is it always easy to know precisely what is happening in the Chinese economy? You have to be careful with the official figures. The estimates of economists of influential organizations are based on these figures – you don’t contradict the number two, almost one, of the world economy. The Western media brushes over the subject and generally prefer to repeat the same speech over and over again about Hong Kong, Xinjiang, Taiwan, and human rights. The few Western-language media that deviate from the mainstream can be a refuge for those disappointed in social-communism who think they have found the last salvation of their ideology on Chinese soil. One looks at China with one’s own reading grid without seeing reality. Living in China does not guarantee objectivity, sometimes the opposite. One sometimes thinks according to one’s interests or ideology and efficiently manages to put a veil in front of one’s eyes. I know a little bit about what I’m talking about; I spent two decades there and met all kinds of sub/surrealists.
The best solution is to be in touch with the ground, or rather the grounds. The economic geography is very varied, and the sectors have different, sometimes contrasting fortunes. As much as new technologies and the Internet have the wind in their sails, specific industries of the last century are struggling, as are particular sectors in distribution. To stand back, it is good to find observers who don’t just talk about trains arriving on time, have the freedom to say so, and have the knowledge, which is rare. Wang Jian is my best critical source to better approach the economy. He acknowledges that it is not easy to gauge one’s state of health. In one of his latest analyses, he takes an indicator on office rents and the vacancy rate (空置率), which reflects the state of businesses and demand, looks at the strong and weak points of the economy.
Office rents fall over two years
Data on the three leading cities has just been released. In Beijing, office rents fell in the last quarter of 2020 for the eighth time in a row, i.e., for two years. The vacancy rate reached an all-time high of 19.4%. The production sector is virtually non-existent in the capital. The decline in rents mainly affects the service sector.
As for Shanghai, prices are down for the ninth consecutive quarter with a higher rate at 21.85%. Shenzhen, with a ninth successive quarter also in decline, recorded a vacancy rate of 27.9%. The average selling price per square meter of office space was 47,900 yuan in the last quarter, a 9.1% year-on-year decrease. For renting, the square meter went from 232 in 2018 to 192 yuan in 2020. Shenzhen is the city of business creation and is a good barometer of the vitality of the economy.
The developer sector is not doing better. Businesses are continually looking for financing, as the regulatory authorities fearing too dangerous debt ratios have further tightened borrowing limits.
Export is doing well, until when?
Besides this not very enthusiastic picture, the export sector has distinguished itself this year with an increase thanks mainly to two factors: 1. the replacement of production from other countries that could not produce, production has been transferred to China (see here ) 2. the transfer of production to China. The export of articles against the epidemic (including masks and gloves). These items will disappear once the epidemic is under control. The Chinese economy has prospered through exports and investment. Now that normalcy has returned, we will have to rely less on this sector.
One term is essential now: home economics -宅经济, we stay at home, we work there, and we consume there. The phenomenon has benefited China’s digital economy, which is undoubtedly the most developed in the world. Is it enough?
Consumption, the weak link
Chinese consumption is still lagging. The weight of numbers masks the reality. The luxury sector indeed benefits from the thirst for the consumption of high-end items, but when we look at the averages, we are far from it. Disposable income figures 可配置收入 for 2019 speak for themselves; they still show the same disparities and inequalities that have existed for decades.
Shanghai and Beijing lead the way with 69,442 and 67,756 yuan per person while the average is 30,733 – median income 28,228.
Only nine city provinces are above it. The Shanghainese’s disposable income is almost double that of a resident of Fujian （7e rang）, 69442-35616 and 3.5 times that of the three least provinces, Guizhou, Tibet, and Gansu. To look at the glass half full, one must add that disposable income has increased from 21,966 to 30,733 over 2015-2019.
Average disposable income from 2015 to 2019 and growth (green line) :
Of course, it is crucial to listen to the official discourse and see how the economy is described and, above all, how the future is envisioned. Besides, it is essential to seek enlightened and critical information to have a balanced view. Generally, in our Manichean world, one rejects the other. Some call the slightest criticism Chinese bashing. Such Chinese chroniclers as Wang Jian have been worried for years about Jack Ma’s fate amid political factions and sharks who want to appropriate his assets. On more than one occasion, the rumor has spread that he had taken refuge in the United States, especially since the announcement of his forced retirement from Alibaba in 2018. If a non-Chinese writer had published such information, what would have been said?
In any case, not all signals are green for the Chinese economy. But the rigor with Chinese characteristics in the fight against the epidemic has been able to erase the initial fiasco, and China, despite its structural problems, is doing better than anyone else. Nevertheless, it must change its development model, become less dependent on exports, investment, and the printing press while generating a real middle class that can support the economy. The thorny issue of the distribution of wealth and its capture by a tiny minority makes China a country with significant inequalities that will undoubtedly have to be addressed.
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13 January 2021