The Chinese Economy Is In Trouble

Why everyone in Shanghai is miserable Don Weinland China business and finance editor Something feels off in Shanghai. I have lived through a number of market downturns, including the famous boom-and-bust years of 2007-08 and 2015, and the smaller routs of 2011 and 2018. During these wobbles I often felt like the downer in the room, with those around me slightly more upbeat. This year I keep discovering that everyone around me is even more pessimistic than I am. It is a strange feeling. As our leader explains, investors abroad and at home have lost faith in China’s policymakers, as the dismal performance of the stockmarket demonstrates. It tumbled throughout January. The Shanghai Composite, an important index, hit a five-year low on February 5th, which seems to have finally alerted China’s leaders to the problem. State investors have started buying up shares in order to stop the drop. These state funds might help stabilise China’s stockmarket. They cannot solve the deep problems that are draining peoples’ spirits. At the heart of things is the downturn in the property sector. The industry is important to everyone in China. Local governments depend on it because they rely on selling land to property developers for most of their income. Average people care about it because 80% of household wealth is stored in real estate. Prices and sales have been falling across the country for more than a year now. Land sales are down significantly since 2021. No wonder people are in a bad mood. But it goes deeper still. The people that became successful during China’s boom years feel especially bad right now. They are watching their hard-earned wealth evaporate. Most will have invested in property and stocks. They will also have put money into trusts and wealth-management products. During the good years property prices only went up. Returns from financial products soared. Now prices are falling and financial products are blowing up, meaning that it is an unnerving time to be affluent in China. The government has not yet stepped in with a viable remedy for any of these problems. Indeed, its inaction is one of the factors driving down sentiment. Officials may eventually bail out the stockmarket. Yet its performance reflects severe economic imbalances that have worsened over decades, such as the concentration of household wealth in the property sector. There is no quick fix for these problems. Send us your thoughts at moneytalksnewsletter@economist.com. We calculate that people with personal wealth of between 1m and 10m yuan, a group that accounts for 8% of China’s population, own half of the country’s housing-related wealth.