China's Economic Woes: A Struggle for Stability and Rejuvenation

China's economy has been grappling with a pall of uncertainty since the country's reopening following the COVID-19 pandemic. From stagnant job markets to crumbling housing prices, the world's second-largest economy is facing a multitude of challenges that have dampened the nation's once-buoyant outlook. As the country prepares to celebrate its 75th anniversary, policymakers are scrambling to implement a series of measures to prop up the faltering economy and restore confidence.

Navigating China's Economic Crossroads

The Struggle for Economic Momentum

China's economic landscape has been marked by a sense of stagnation and disillusionment in recent months. The country's young professionals are finding it increasingly difficult to secure employment, while white-collar workers face the prospect of pay cuts and layoffs. Entrepreneurs are grappling with the challenge of financing their businesses and servicing debts, while middle-class families are witnessing a significant erosion of their wealth due to plummeting housing prices. The affluent are also seeking to move their assets out of the country, further exacerbating the economic woes.This bleak scenario has given rise to a new phrase, "the garbage time of history," which encapsulates the widespread sentiment that China is trapped in a period of economic futility with little hope for a turnaround. This pessimism stands in stark contrast to the buoyant outlook that prevailed just five years ago, when economists were predicting China's imminent overtaking of the United States as the world's largest economy. Today, the conversation has shifted to how Beijing can avoid a repeat of Japan's "lost decade" of economic stagnation following the bursting of its housing bubble in the 1990s.

Policymakers' Response: Stimulus and Intervention

In a bid to shore up faith in the economy, Chinese leader Xi Jinping has finally given the nod to a much-needed stimulus package. The country's central bank has unveiled a raft of measures to counter falling prices, including freeing commercial banks to lend more money and making it cheaper for households and companies to borrow. Officials have also announced rare cash handouts to disadvantaged citizens and pledged subsidies for recent graduates struggling to find employment.The ruling Communist Party's Politburo has further reinforced the bullish messaging, acknowledging the "new situations and problems" that have arisen in the economy and vowing to boost fiscal spending, arrest the decline of the property market, and improve employment prospects for fresh graduates and migrant workers. This coordinated policy blitz has given an adrenaline shot to the country's dismal stock market, with China's blue-chip stocks and Hong Kong's Hang Seng index surging in recent days.

The Limits of Stimulus and the Structural Challenges

While the stock market rally has generated a sense of optimism, economists caution that reversing China's economic downturn will require much more than just stimulating the financial markets. Rhodium Group's Logan Wright argues that the stimulus measures "make the leadership look more reactive, more responsive to the downturn in the economy," but they do not address the underlying structural problems that are weighing down economic growth.China's decades-long investment-led growth model has reached a "dead end," and fundamental overhauls of its fiscal system, including a redistribution of income and greater transfers to households, are necessary to rebalance the economy toward a more sustainable, consumption-driven growth model. The country's high saving rates and the collapse of the property sector, where most Chinese invest their savings, have further compounded the challenges.

The Troubled Property Sector: A Drag on Growth

The outlook for China's real estate industry, which accounts for a significant portion of the country's economy and household wealth, remains bleak. Despite the government's efforts to rescue the market, demand has failed to revive, and home prices continue to plummet. The country now has so many empty apartments that not even its 1.4 billion population is enough to fill them, and the shrinking population could further hobble future growth.The property woes have had a ripple effect on the broader economy, with the Economist Intelligence Unit's Xu Tianchen noting that "there's not much Beijing can do" to stabilize the sector. The adjustment in the property market appears to be nearing completion, and the government's interventions have struggled to revive the market.

The Disenchantment of China's Youth

The economic challenges have also taken a toll on China's younger generation, who are grappling with a growing sense of despair and disillusionment. The country's Gen-Zs, who have grown up in an era of rapid economic growth and improving living standards, are now confronting the possibility that they may not do better than their parents.The government's crackdown on the private sector, from big tech to private tutoring, has eliminated many jobs once available to China's fresh graduates, leading to a surge in youth unemployment. This poses a potential problem for the Communist Party, which has long staked its legitimacy on the country's unprecedented growth.As the economy slows, Xi Jinping has sought to bolster another pillar of the regime's legitimacy: nationalism. However, Alfred Wu, an associate professor at the National University of Singapore, notes that the Communist Party "doesn't have effective solutions to the economic slowdown," and the most troublesome headache for the party is restoring confidence in the economy.