China’s Sandwich Generation Revisited

China, Company Strategy, Economics, Environment

Chinaexports

By John Richardson

THE sandwich generation in China, those too rich to qualify for social housing but also too poor to pay for ridiculously-overpriced private accommodation in the first-tier cities, is becoming increasingly disillusioned.

“We are really tired of claims that inflation is under control, when, in fact, the real inflation numbers are much higher than the government claims,” one Shanghai resident told the blog.

“It is not just accommodation that’s the problem, but also the cost of food. And we have also been told that, because GDP growth is slowing down, so will increases in our wages,” she added.

Even the latest official consumer price inflation number is cause for concern, as it reached a four-month high in June.

“Consumer prices rose 2.7% year on year in June, up from 2.1% in May, the highest rate since February,” wrote the FT in this article.

“Higher pork prices, a major component of China’s consumer price basket, were the biggest contributor to the jump. Rental costs also edged higher, a reflection of how Chinese property inflation has accelerated this year,” the newspaper added.

Chinese property inflation has accelerated because of all the hot money pouring into real estate as a result of out-of-control lending growth – one of the reasons for the recent clampdown on credit.

A problem for the sandwich generation – China’s middle-income earners, who are mainly young – is that they lack bargaining power with employers because of high levels of graduate unemployment.

In contrast, labour supply in the manufacturing sector remains tight, despite the economic slowdown. This has led to further big pay rises for factory workers during 2013, which has, of course, further undermined the competitiveness of low-value manufacturers.

Additional pressure is being placed on the manufacturing sector by declining factory-gate prices, a consequence of the failed investment-driven growth model.

“The producer price index fell 2.7% year on year in June. It was its 16th straight month in deflationary territory, dragged down by falling commodity prices as well as sluggish domestic demand,” said the FT in the same article.

Exports also weakened in June, by 3.1% from a year earlier with imports also down by 0.7% (see the above chart).

Where do we go from here?

We think that:

  • The government has no choice but to press ahead with economic reform, as it has to keep the urban middle-income earners happy. This constituency wants not only more affordable property and an overall lower cost of living, but also greater income equality and significant improvements in food safety and air quality.
  • Beijing is prepared to allow numerous uncompetitive companies, including many producers and buyers of chemicals and polymers, to go the wall as it attempts to deal with overcapacity across most industries. The fact that unemployment has yet to become a problem in the manufacturing sector, because of tight labour supply, gives Beijing some breathing space.
  • As Xi Jinping and Li Keqiang stick to their guns, this could mean flat or declining GDP growth over the next few years. Yes, flat or declining growth. We believe that, even though investment banks are busy revising-down their GDP growth estimates, they remain far-too bullish.
PREVIOUS POST

Zero And Declining Growth For China Imports

09/07/2013

By John Richardson CHIINA’S ethylene equivalent imports will see zero growth o...

Learn more
NEXT POST

Only 4-6 US Cracker Projects Will Happen

11/07/2013

By John Richardson ONLY 4-6 of all the above US cracker projects are likely to g...

Learn more
More posts
Polyethylene producers must avoid repeating the mistakes of Q1
05/06/2020

By John Richardson AFTER a very challenging first quarter, nobody wants to make further write-downs ...

Read
China’s PP production growth could lead to big declines in 2020 imports
01/06/2020

By John Richardson PLEASE DON’T say I didn’t warn you. China is rapidly moving towards polypropy...

Read
Coronavirus, impact on the developing world and the scale of demand losses
29/05/2020

By John Richardson ALL OF us are struggling to come to terms with a collapse in the global economy t...

Read
Coronavirus, reshoring and the polyester industry: Good luck with that
27/05/2020

By John Richardson POLITICIANS, not just including the Populist variety, are talking a lot about res...

Read
Beware of the fragile nature of the oil and petrochemical price recovery
22/05/2020

By John Richardson RECENT rises in oil and petrochemicals prices should not in my view be taken as a...

Read
China petrochemical inventories build on what could be false hopes of a V-shaped rebound
19/05/2020

By John Richardson AS PETROCHEMICALS storage space in China fills up on the hope that the country ca...

Read
Further polyethylene rate cuts seem inevitable with no certainty on who will blink first
18/05/2020

By John Richardson IT IS NOT just a razor-like focus on petrochemicals demand that will get you thro...

Read
What petrochemical companies must do to adapt to a smaller coronavirus economy
15/05/2020

By John Richardson PETROCHEMICAL companies can adapt to the coronavirus New Normal by running their ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more