China battles economic slowdown

Economic growth


Wenzhou.pngWenzhou in coastal Zhejiang province was the first city to encourage private enterprise when China began opening its economy in 1978. Its growth accelerated after China joined the World Trade Organisation in 2001, attracting 2.8 million migrant workers to join the city’s population.

Now its 9 million people are at the forefront of China’s slowdown, according to an on-the-ground report from Bloomberg, which notes:

“The once bustling city centre is in decline”
• “Businesses are suffering because of weak demand, higher raw material costs and rising wages”
• “70% of businesses rely on exports…leaving it vulnerable as Europe’s crisis crimps expansion”

City centre roads, once packed with traffic are now empty. Shopping areas are also quiet, with shops already advertising 40% sales, a month ahead of the usual timing.

Bank lending has now entered a vicious circle. Wenzhou once had a thriving private lending sector, which powered the city’s sustained expansion. But the downturn in demand caused 60 business owners to flee in January/February, as they couldn’t make the repayments due. So now lenders are sitting on their hands, causing more businesses to close.

The effect on ordinary people is stark:

• Mr Liu, a taxi driver, used to earn Rmb 5000/month ($750)
• Today he earns just Rmb 3000/month from his 12 hour shifts
• Food takes half his earnings, Rmb 1500/month
• After other costs, he has just Rmb 400/month for rent

Similarly, the city’s former property boom is collapsing:

• Prices fell 14% in May, the fastest drop in the country
• But apartments still cost Rmb 30000/sq metre ($3950/sq yard)
• This is equal to the average annual per capita disposable income
• High end prices have fallen from Rmb 70000/sq metre to Rmb 40000

This is not like 2009, when the government could pump up the system with easy lending. Instead, policy remains effectively on hold, until the selection of the new Politburo is finalised in October. Meanwhile, as the official China Daily notes, local governments are instead often focused on meeting their GDP targets via a ‘make and break’ construction policy.

In Shenyang, for example, it reports that the city has just blown up a 9 year-old indoor sports stadium, which cost $126m and was the largest in Asia when it was built. Its reporter, Huang Xiangyang adds:

“I don’t know how much of our GDP comes from this make-and-break game played by some local officials. But I do know it not only wastes resources and causes irreversible environmental damage, it also inevitably provides a hotbed for rampant corruption.

Its been said that “there is at least one corrupt official for each kilometer of highway built”, after 62 officials in Liaoning were convicted of corruption in 2003 relating to the construction of a 50-km highway linking Shenyang and Shanhaiguan.

“But it is a game some officials like to play because it boosts local GDP, which has long been a key criteria for promotion, despite Beijing’s repeated calls for green growth.” In the past, where Wenzhou had led, the rest of China has followed. Its current troubles may therefore turn out to be a forerunner of wider problems in China’s economy.


Financial markets rally as real economy weakens


Petrochemical markets continue to provide plenty of warning signs about the dete...

Learn more

High oil prices hit retail spending


Brent oil prices have just finished a record sequence of 240 days above $100/bbl...

Learn more
More posts
ACS Chemistry & the Economy webinar on Thursday

Please join me for the next ACS Chemicals & Economy webinar on Thursday, at 2pm Eastern Standard...

225 years ago today. The first ever vaccination – against smallpox, the great killer of the time

The pandemic has reminded us of the critical role played by vaccination in our lives. Its impact beg...

Supply chains set to transform as companies start to reshore

Major new opportunities are starting to appear in today’s New Normal world, as I describe in a...

Pandemic leads to ‘baby bust’ as births decline in most countries

A year ago, many were suggesting the lockdowns might produce a “baby boom” as couples sp...

Smallpox was the first vaccination to change the world – now we have a new opportunity to improve our lives

Chart 1: Increased life expectancy led to a dramatic increase in GDP/capita The pandemic has reminde...

COP 26 set to accelerate development of the 15-minute city

One of the good things to happen in the pandemic over the past year is that ‘cooking has becom...

China’s dual circulation policy aims to reduce debt reliance

Every now and then, people wake up to the fact that debt is only good news when it adds to growth. O...

UK set to take hard line on EU trade under David Frost

The Brexit debate has always been about politics, not economics.  So it was no surprise that Decemb...


Market Intelligence

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

Learn more


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