After Fiona Hu left her small rural hometown at the age of 18, she worked for ten years to open a beauty salon in Guangzhou province. But after 2 years of bad business due to the impact of the pandemic, she was deeply in debt and today her dream turned into a nightmare.
The 44-year-old shared: “Now I have nothing but debts.”
Slowing economic growth, due to the impact of mitigation measures to prevent the Covid-19 epidemic, has led to problems for Hu’s business and financial assets. Hu and her husband struggled to pay the bills for about a year. But as of May of this year, they could not afford the monthly mortgage payment of 9,000 yuan ($1,341). Their apartment will be sealed and put up for auction.
“I don’t think I’ll get out of debt for the rest of my life,” Hu said. “Everyone has a hard time, life is really hard.”
Rising debt and falling incomes aren’t just a problem for small business owners in China, who have been hit hard in recent months by sluggish economic growth. The same story also happened to Tang Yin – a 36-year-old secretary who works at a small technology company in Guangzhou.
Tang tries to keep working, but her monthly salary has fallen from about 5,000 yuan to about 4,000 yuan. Her mother is retired but recently had to use all her savings to pay off a consumer loan and credit card worth 110,000 yuan.
The story of Tang and Hu illustrates the growing insecurity of the Chinese middle class. The unstable economy of 2 years broke the idea that if you just work hard, your income will rise.
Faced with uncertain economic prospects, Chinese households are cutting spending. According to Shen Jianguang, chief economist at JD Digits, the fintech arm of JD.com, new loans to households reached 1.33 trillion yuan in the first five months of this year, the lowest level in a decade.
Short-term loans to households totaled 192.7 billion yuan, Shen said, the lowest level in January-May since 2009. The trend shows that domestic consumption has weakened. † Medium and long-term loans were also at a six-year low of 1.14 trillion yuan in the first five months, as real estate demand declined.
He added: “Chinese households are leaning towards ‘austerity’. Based on the trend we see in developed economies, as households begin to cut spending, the impact on economic growth will become more persistent and severe.”
According to Shen, China needs to come up with a bigger stimulus package to support income, employment and consumer spending.
According to a quarterly survey by the Institute of Social Sciences Survey of Peking University and the Ant Group Research Institute, business conditions for MSEs continued to deteriorate in the first three months of 2022. Year Over Year Last year, MSEs saw significant declines in operating income, cash flow and margins.
About 38% of MSEs have extremely low cash flows, making them less likely to last for less than a month, compared to 30% in Q1 2021. Meanwhile, survey results will be worse in Q2 this year years, when major cities in China blocked to prevent epidemics.
Household income is rising less quickly this year than last year. The reason is that the Chinese economy is facing “headwinds” both at home and abroad, including a resurgence from Covid-19, supply chain disruptions and increased uncertainties from conflict between Russia and Ukraine.
According to a report published in late April by Moody’s Investors Service, the average sales price of a home in China is also expected to fall slightly in 2022 as developers cut prices to boost sales and cash flow. In addition, buyer demand has also declined, although stimulus measures have been taken in recent months.
Amid the turmoil, many small and medium-sized business owners in China predict that the future will be bleak.
“What we don’t have right now is the confidence, the expectation that wages and the domestic economy will continue to grow,” said Zheng, an official in Shenzhen.
He said the salary in the department where he works has fallen by about 30% this year. This will affect his ability to pay the mortgages on two properties he has borrowed with loans based on household income.
Local governments in China are slashing a series of bonuses as part of an effort to ease cost pressures.
Daisy Deng, a lawyer in Guangzhou province, said she is more cautious about spending and is giving up on her intention to buy a new car due to the difficult economic environment. “People’s perceptions of income and the ability to repay debts are changing rapidly,” she said.
Source: Cafebiz
