New Delhi: When university students in China donned their graduation robes this summer, many did not pose for the usual photos depicting jubilation and victory. Instead, they flooded social media platforms with snaps hinting at dejection and despair. Some posed as corpses, others appeared to bin their graduation theses.
These viral photos were the result of one of China’s most pressing economic challenges: the alarmingly high youth unemployment rate, which soared to 21.4 per cent in June, when the 11.6 million newly minted college graduates were poised to enter the job market.
The Chinese government responded to the students’ despair by suspending the public release of unemployment data from July. Similarly, vital economic reports, such as for exports and cement production, have also either disappeared or become “corrupted”.
However, there are plenty of other indications that China’s economy has hit more than a rough patch.
The country’s real estate sector is grappling with staggering losses, banks are facing sluggish growth, and manufacturing activity has been shrinking for months.
The latest hairy data point comes from Country Garden, China’s largest developer, which reported a $6.7 billion loss for the first half of 2023 Wednesday. In its regulatory filing, Country Garden went so far as to warn of defaulting on its liabilities if the situation deteriorates further.
“The Group [Country Garden] might not be able to fulfill the financial covenants of these borrowings, which may result in default of these borrowings and cross-default in certain other borrowings,” the filing noted.
Currently, Country Garden’s debt is reportedly above $150 billion. Last month, it also announced that it had failed to make repayments worth $22.5 million on two US Dollar bonds. Further, it has sought to delay repayments on a private onshore (Chinese) bond for the first time.
Evergrande Group, another major Chinese developer, is also struggling. The company is reportedly laden with over $300 billion in debt, posting a total of $81 billion in losses for 2021 and 2022. Additionally, it reported a further loss of $4.53 billion for the first six months of this year Sunday.
But the headwinds facing China extend well beyond real estate. The manufacturing sector in China contracted for the fifth consecutive month in August, according to data from the National Bureau of Statistics.
The agency reported a marginal increase in the manufacturing Purchasing Managers’ Index (PMI) from 49.3 in July to 49.7 in August. However, a PMI of only 50 or above indicates economic expansion, so this figure still suggests that the manufacturing sector is contracting.
Then, the world’s largest bank by total assets, the Industrial and Commercial Bank of China Ltd. (ICBC) and the Bank of China (BoC) both posted sluggish profit growth for the first half of the year Wednesday. ICBC posted profit growth of 1.2 per cent, while BoC managed a meagre 0.78 per cent growth compared to the same period last year.
The banks warned of regional debt risks, with the BoC chief risk officer even highlighting that some local government financing vehicles (LGFVs) had defaulted, reported Reuters.
These factors, coupled with record-high youth unemployment in June and an overall unemployment rate of 5.3 per cent in July, have led to concerns that China’s economic issues may be deep-rooted and systemic rather than cyclical.
“The problem in China is that its economy progressed too fast to develop proper mechanisms and systems to regulate it effectively,” explained Aravind Yelery, an associate professor at Jawaharlal Nehru University.