Time To Move It - Move It - Move It!

The time has come for China to focus on the real job at hand. Get the economy moving.

China needs to get its economy back on track to at least a 5% growth rate in the next year. The priority must be to get the macroeconomy back on a normal track. Long-term sluggish economic growth and development as we have seen spurred on by zero Covid and the property crisis in China, is destroying the Chinese middle class and entrepreneurial environment.

At the beginning of the year, the central government set a GDP growth rate target of approximately 5.5%, but this is certainly not going to be achieved in 2022. The weakening economy is hurting China's labor force, productivity and global exchange rate. Even if the economy rebounds after the pandemic is over, some of the losses, especially in supply chain systems and employment are going to be a irreparable as strict and uncertain policies have curved market expectations in behavior.

By some calculations, China's present GDP per capita is at the same equivalent level of Japan in 1975 or Germany in 1971. If the central government wants to fulfill its vow made at the 20th Party Congress in October to achieve a per capita income level of a medium developed country by 2035, China needs an annual GDP growth rate at no less than 4.7%, accounting for inflation and exchange rate movements, which at the moment looks like an extremely difficult challenge.

Most economists agree that the economic growth this year in China is not at a reasonable range to achieve the economic goals and necessary economic evolution and realization that's needed to keep the Chinese economy moving forward. China's economy grew by 3.9% in the third quarter, year on year, up from the 0.4% growth in the second quarter.?By Chinese standards this is worse economic growth in the past 40 years.

The biggest impact is going to be in small and micro businesses in China which comprise over 80% of the total economy. With continuing zero Covid policies impacting businesses across all industries throughout China, even in the past week, Alibaba reported that nearly 20% of their sales deliveries were canceled because of zero Covid restrictions prohibiting delivery in regions of China.

Although governmental authorities have started to roll out measures to help small and micro businesses, much of this is happening too late in the game and the typical government bureaucratic application process and approval systems are basically archaic, prohibiting successful implementation of these programs on the scale and speed necessary.?Announcing a program is not the same as making it happen.

Despite some efforts by the government, most small business owners say that getting money from banks is still very difficult. It doesn't solve the fundamental problem, which is three years of business wrecking coronavirus curbs continue to frighten consumers, make delivery of products nearly impossible and interrupt basic employment activities. It's hard to run a business if you don't know if your employees are actually able to show up for work.

Most small and micro businesses receive funding and loans through small regional banks throughout China. For many small micro companies in China, seeking help and assistance from financial institutions is typically not the first course, instead owners resort to family and colleague networks for financial support, which have basically run dry in the Covid zero world.

Although the national government urges banks to provide loan support, more than 60% of inclusive loans issued in China are provided by small and medium size banks, which are facing liquidity risks because of the slowing economy and in turn are likely not to lend to small businesses who have insufficient credit and financial guarantees to support the loans needed.

Chinese cities are littered with economic and business disasters, from closed restaurants and hotels, tour operators and travel agencies, language centers, businesses of all sizes and dimensions have closed in the last year, buy some estimates as many as 1 million businesses have gone bankrupt in China in 2022.

At the same time, a true crisis of confidence exists in the Chinese economic system, scaring consumers from going shopping and at the same time preventing business owners from making longer-term investments in equipment and personnel. It becomes a self-fulfilling prophecy, people are afraid to shop and the impact on business is detrimental and then businesses don't hire and then people don't think they are going to keep their job in the future and so they don't go shopping. It's a difficult cycle to get out of.

The days of centralized economic business control and organization in China are long gone and perhaps what we're seeing is the early steps of realization that this old system no longer works, command and control in a country of 1.4 billion people is virtually impossible.

For nearly 20 years living in China I've always been impressed by the pragmatic viewpoint of the people and the government, it's about moving forward, doing the right thing and keeping the boat on course. This is not an ideological society, people don't really care about the philosophy behind the policy but what they really care about is how the policy impacts their lives.

Perhaps we are waking up to the realization that this really needs to be top of the agenda and it's time to start fixing the problems rather than just simply talking about it.

From Shanghai.

Alexander Glos