Only feel-good consumers can save China’s sick economy
Low wages and long hours have hobbled spending amid President Xi’s ‘export-first’ policy push
China is rolling out hundreds of billions of dollars in duct tape to hold together a broken economic model. Super-sized stimulus measures are in the works to prop up a crumbling property sector while stock markets have been juiced up.
But the big question this week is whether the powerful Standing Committee of the National People’s Congress will address the real problem of stunted consumer spending.
Low wages and long hours in the crucial manufacturing industry highlight the challenges facing President Xi Jinping’s Communist Party state. Without boosting salaries and working conditions, the latest incentives will fizzle out.
“In China’s factories, workers endure long shifts, typically from 8 am to 8 pm, with only two days off per month,” China’s Labour Bulletin revealed last week in its October report.
“When asked to switch to a standard ‘5-day, 8-hour’ work schedule, many workers protest because the basic salary is insufficient to support their families,” the CLB pointed out.
“The combination of low minimum wages and extended overtime hours has resulted in workers clocking up over 300 hours per month,” it said.
Shrinking spending:
- Personal consumption expenditure as a percentage of China’s gross domestic product or GDP is just 39%.
- In the United States, it is a whopping 68%, and in Europe it hovers around 53%.
Delve deeper: Even Chinese white-collar workers are feeling the pinch after the property meltdown and “excessively long hours.” The tech sector’s 996 policy translates into 9 am to 9 pm, six days a week. And that is just for starters.
Between the lines: Stagnating salaries, long hours, and heavy state subsidies have fueled Xi’s ‘export first’ approach, undercutting foreign competitors. It has also created tariff wars in key markets such as the United States and European Union.
Big picture: “Our view has been that raising consumer spending in China as a share of GDP is really important. So far, I haven’t heard any policies that address that,” US Treasury Secretary Janet Yellen said last week, as reported by Voice of America.
The bottom line: Beijing’s playbook has not changed for more than two decades. It revolves around huge infrastructure projects, an inflated property boom, and margin-thin export waves flooding global markets.
China Factor comment: But the fallout from the construction industry’s collapse has left local governments in a financial blackhole with land sales drying up. Overall, public debt has now soared to US$16 trillion, or 116% of GDP. Time to fix China’s broken economy.