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Marc Wandschneider is a professional software developer with well over fifteen years of industry experience (yes, he really is that old). He travels the globe working on interesting projects and gives talks at conferences and trade shows whenever possible.

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Feb 21, 2009 | 01:27:14
Economic Slowdown in China?
By marcwan

When visiting the USA last summer for some business, the Beijing Summer Olympics were but 3 weeks away, and the hysteria in the West was at a frenzy: The Chinese are going to take over the world proclaimed seemingly every other news source. Radio shows were filled with people talking about the coming Chinese threat, and how the American way of life was at threat due to the waking dragon 4000 miles to the west. Even in Canada, during my visit there, there was a hefty amount of anxiety about the new world order and how things would never be the same.

One of the nice thing about events such as the Olympics, however, is that they focus the attention for only a short period of time, and talk of China in the West seems to have receded to more normal levels, especially as navel-gazing increases while governments try to solve the messes in their own backyards.

The question I am most frequently asked now is: How is the economic crisis affecting China? Is there evidence of a huge slowdown there? Like most things in China, it’s hard to say: there are few statistics offered by anybody, and those that are offered tend to be heavily manipulated and untrustworthy.

So, without any official data, lets look at the available anecdotal evidence:

  • Newspapers are full of stories of factories closing left and right, especially in the industrial heartland of the Pearl river Delta in Guangdong Province. People are going home en masse to the provinces, and not planning on going back.
  • Politicians are suddenly going out of their way to be seen as friendly to farmers. With so many farmers newly returned to the countryside and not as willing to tolerate a lousy feudal existence, the recent drought plaguing the entire northeast of the country is getting serious attention from all levels of government. Most of the unrest and protests in the country occur in smaller towns and villages, and keeping those people happy will be a priority for the Party.
  • In the big cities, real estate prices are markedly down. In Shenzhen, Nanjing, Hangzhou, and other major cities countrywide, real estate has fallen from 2500$ – 3500$ USD per square metre (purchase price) to well below 2000$ USD/m2. Worse, people who have placed deposits on apartments at the higher prices are demanding money back from developers who, desperate to fill the their units, are selling the remaining ones at hefty discounts.
  • Rents in Beijing are down at least 15%, if not more. At the high end, in apartments that cater to foreigners, rents have sometimes even dropped dramatically. I saw one new building here in the east 2nd ring road that was advertising 1BR units (about 90m sq, or 1000 sq f) for 1200$ USD not six months ago, and is now as low as 700-750$ USD per month. Even in the cheaper, lower glamour units that cater more to locals, rents that were 4000 RMB (575$ USD) per month are now going for, at most, 3400 RMB (490$ USD).
  • Food and restaurant prices are markedly up over the last two years, much more so than one would easily attribute to normal inflation levels.
  • The Chinese stock markets are down – way down – from late 2007 levels, often by over 70%. Locals who used to spend money completely recklessly because the stock markets would make it all back are much more cautious now. A recent 30% surge in the market already seems to be fading.
  • For an “on the street” measure, Yoga studios are hurting. Memberships, which were selling out at well over 8000 RMB a year (1150$ USD or so) are now heavily discounted into the 5500 RMB (< 800$ USD) range and you don’t see as many students being driven up in their chauffeured black Audis as before.
  • And at an even more “on the street feeling” level, fireworks during this year’s Spring Festival – the Chinese Lunar New Year – were the lowest in the three years I’ve seen them. Whereas, two years ago, the first night of spring festival was an insane war zone from 6pm until 3am, this year, it was mildly exciting from 8pm until 1am, but by 1.30am, most of it had died out and I was able to get a good night’s sleep without much interruption. This is a slightly tongue in cheek measurement, as much of the reduction could be attributed to the novelty of fireworks simply wearing out. 2007 was the first year in over 15 years that the central government allowed fireworks.

Evidence that goes against an economic slowdown exists to some degree too, however, and must be noted:

  • Retail spending appears strong. Statistics all point to it being quite robust, and anecdotal evidence shows many of the local shopping malls and department stores doing booming business many days of the week. Whether people are purchasing as much or just browsing more is hard to tell, and there definitely is a lot more heavy discounting in the retail chain.
  • Car registrations here in the country’s capitol continue to accelerate. In the first 45 days of the year, there were nearly 70.000 cars licensed with the city government, or well over 1500 a day.

Talking to people, more and more conversations do seem to involve the words jīngjìwēijī (经济危机), or economic crisis, and most Chinese people I know remain as frugal as they’ve always been, so it’s quite wise that the central government avoided any tax breaks or cash handouts to the locals, as they would simply save it and inject almost nothing into the economy.

Are things slowing here? Definitely? Is the crisis going to be a major disaster for the country and government in particular? Much harder to tell.

A note on the picture above: one of the questions I ask myself about China is why do they constantly design crappy buildings or (in this case) plazas/squares that don’t handle things like drainage (or wind, cold, rain, etc) properly.

The answer: it’s significantly cheaper to just hire people to squeegee away the water than to pay the extra to money solve these problems at design/construction time. This applies in so many situations.

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