China’s economic problems are spiralling as its citizens tighten their belts and investors pull billions of dollars out of the country.
The managing director of Wing Sang Electrical, which makes products such as hair dryers and straighteners, says habits have changed since the country’sXi Jinping has a lot to grapple with as China’s economic problems deepen.“I do see consumer behaviour changing, including less spending on frivolous luxury goods,” he says.Lun’s business is based in Shenzhen, China’s high-tech epicentre linking Hong Kong to the mainland.
China grew 4.7 per cent in the second quarter of 2024, slower than the 5.1 per cent predicted by economists as nervous foreign investors pulled a record £12 billion out of the country over the same period, in blow to President Xi Jinping.Some fear the world’s factory is now in overdrive as shrinking profits force producers to ramp up output just to get enough cash to service their debts.
Prices across the economy were shrinking at the end of 2023 and have only just started rising again, climbing 0.5 per cent in July from a year ago. “I’m optimistic that in three to five years, the job market will recover and be thriving again,” she says.Ben Cavender, managing director at China Market Research Group says it is clear that Chinese consumers have been tightening their belts.“Consumer confidence is low right now, and if anything getting lower,” says Cavender, who is based in Pudong, near Shanghai.
“Chinese brands took advantage of Covid to become much better at brand positioning and marketing, and can be as competitive or more competitive than foreign brands now in a lot of categories,” says Cavender. The industry, which has fuelled the explosive credit growth in recent years, has enabled an easier flow of credit to small and medium enterprises.
International tensions are another worry. Donald Trump has already vowed to escalate its trade war with China if he returns to the White House next year, while Kamala Harris said this week that as president she would ensure “America, not China, wins the competition for the 21st century”. Fears about overcapacity are creating more trade tensions, with many countries including the UK worried about being flooded with cheap cars in order to meet net zero targets.
“But in terms of getting things done, they can never win against the Chinese. So they are basically deluding themselves. The issue is that they don’t want to accept that China is going to be the largest economy.”
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