In 2004, as China’s economy was emerging as a global force, a group of researchers started conducting nationwide surveys asking Chinese people if they were better off financially than they were five years earlier.
The percentage who felt wealthier climbed when surveyed five years later and again in 2014, when it reached a high of 77 percent.
Last year, when respondents were asked the same question, that figure dropped to 39 percent.
The results of that survey, titled “Getting Ahead in Today’s China: From Optimism to Pessimism,” speak to a new reality. China’s economy is confronting a crisis unlike any it has experienced since it opened its economy to the world more than four decades ago. The post-Covid rebound that was supposed to bring the economy roaring back to life was more like a whimper.
A few years ago, Beijing resolved to wean its economy from its dependence on an overheated real estate market, a sector that had underpinned the savings of families as well as China’s banking sector and local government finances. Now, the property sector is in crisis. Developers collapsed, leaving behind huge debts, a trail of failed investments, unsold apartments and lost jobs.
Chinese consumers, already prone to saving heavily, have become even more frugal. Businesses that endured the crippling impact of draconian Covid measures have cut salaries and scaled back hiring. Millions of college graduates joining the job market are facing long odds and poor prospects. And China’s population has shrunk two years in a row. In a country where the majority of people had only known the economy to grow rapidly and living conditions to improve, confidence is eroding.
Sherry Yang opened her business in 2006 making store signs, billboards and posters in Sichuan Province in southwestern China. Within a few years, local firms were placing so many orders that Ms. Yang had 16 employees and her printing machines were running around the clock.
But the business has never fully recovered after Covid, she said. This summer, already sluggish demand worsened; sales in July fell 70 percent from a year earlier. Ms. Yang said it felt like every industry was struggling and no one was spending.
Ms. Yang is down to six employees, many of whom spend the day scrolling their phones because there isn’t enough work.
“This has been the most difficult year since our opening,” she said.
Consumer spending, which Chinese authorities have identified as an important driver of growth, remains weak across the economy.
Alibaba, China’s biggest e-commerce firm, said sales in its domestic online shopping business fell 1 percent in the spring. China’s summer movie box office sales have dropped by almost half over last year, according to Maoyan, an entertainment data provider. The U.S. Department of Agriculture forecast in August that Chinese consumers would cut back on buying pork and shift to cheaper beef, because of economic pressures.
A number of foreign firms that once rushed into China to catch a rising tide are now retrenching. Last month, the beauty retailer Sephora, an arm of the French luxury group LVMH, announced that it was cutting jobs because of “the challenging market.” IBM is shutting its two research and development centers in China.
And policymakers trying to respond are hindered because they cannot rely on a principal fix that worked in the past. For years, local governments borrowed money for splashy development projects that kept people working and the construction sector booming — even if there wasn’t an actual need for that much infrastructure.
But the debt from that borrowing, often funneled through opaque funding channels, has ballooned to more than $7 trillion. With investors already jittery about China’s financial system, the days of lavish borrowing for vanity infrastructure are unlikely to return anytime soon.
The Chinese government has signaled its alarm by restricting access to data about the markets and economy. Last year, it suspended releasing youth unemployment figures when the number reached record highs. It started distributing the information again this year, with a new methodology that lowered the figures.
To quell discussion of a major economic crisis, officials have warned some economists not to draw public comparisons between China’s problems and the collapse of Japan’s debt-fueled property bubble in the 1980s, which weighed on its economy for decades.
China’s debt is difficult to ignore, however.
While the housing sector’s collapse has caused much collateral damage, the risk of insolvency is minimized by China’s tightly controlled financial system. The danger is that the government could have fewer fiscal resources to deploy to keep things from unraveling.
“The consequences for this fiscal crisis is less growth,” said Alicia Garcia-Herrero, chief economist for the Asia-Pacific region at the investment bank Natixis.
The economic uncertainty has left Chinese savers and foreign investors alike scrambling for safe places to park their money. Real estate prices continue to plunge, and Chinese stocks are underperforming compared with those in just about every other major country, including the United States, Japan and India.
Foreign funds have turned into net sellers of Chinese equities in 2024, which would be the first annual outflow since the data became available a decade earlier. Shares of around 180 Chinese companies have been removed from a critical stock market index since the start of the year, reducing the presence of Chinese firms in global benchmarks.
Investors have retreated to the safety of China’s bond market, driving up prices and pushing down yields. But even that comes with a potential risk. Yields collapsed so drastically that the country’s central bank is now concerned that it might leave banks vulnerable if interest rates rise in the future.
Chinese investors have also piled into gold, helping drive prices to record highs.
China has forecast that its economy will grow about 5 percent this year, a faster rate than most major economies, although that may now be in doubt. A record-setting surge in exports, flooding the world with electric vehicles, batteries and household appliances, is fueling China’s economic growth. But the resulting glut of supply is also undermining the profitability of the high-tech manufacturing industries that China had hoped would soften the blow of its painful shift from real-estate-led growth, while drawing a backlash from a growing number of major trading partners.
For its part, China has downplayed economic concerns. In an April opinion article in state media, Jin Ruiting, director of the Institute of International Economics at the Chinese Academy of Macroeconomic Research, said Western media and politicians continued to “make a fuss about China’s short-term economic fluctuations,” while “unilaterally exaggerating the problems and challenges of the Chinese economy.”
But fundamental problems remain.
For a vast number of young people, there are not enough jobs. In July, China’s unemployment rate among 16- to 24-year-olds jumped above 17 percent, from 13 percent in June.
Winnie Chen graduated this summer with an auditing degree in Nanchang, a southeastern Chinese city. She took the civil service exam in March but didn’t land a job, competing against hundreds of applicants for every available position.
She started looking for private-sector jobs. Ms. Chen messaged 1,229 companies on a job-seeking app and applied for 119 jobs in accounting, e-commerce, social media and other industries. After dozens of interviews, she said, she scored a few job offers — but all came with “absurd” conditions.
One job had a starting salary of $380 a month, which she considered too low to live on. Another company offered her a position, but said she would have to work on public holidays and not get any days off in return. She was offered a position she was told was for a makeup artist, but declined after learning she would actually have to work in a nightclub.
“It feels like there are too many college graduates now, too many people but too few jobs,” Ms. Chen said, noting that many of her classmates were jobless. “The economy is in a bad state.”
