China's weakening economy in two Indicators

0:00This message comes from Capital One with the Quicksilver card. Earn unlimited 1.5 % cash back on every purchase, every day. What's in your wallet? Terms apply. See CapitalOne.com for details. This is Planet Money from NPR. 2023 was meant to be the year for China's economy. After years of heavy COVID restrictions, the Chinese government was loosening up. There was this theory that over a billion Chinese people would all of a sudden get out of quarantine and start to spend like drunken sailors. Or like Americans. That's even worse, right? Buying dishwashers, home renovations, fancy meals out, Amazon, you name it, Americans will buy it.

0:46And this theory is called revenge spending. Buying things just because you couldn't for a long time. But it's been hard to see evidence of revenge spending in the official statistics in China. China's economy seems to be pretty weak these days, if anything. Higher unemployment, house sales plummeting. But you know what? The economy is more than just a collection of official statistics. It's also real people with real stories. Well, there is an economic report we release here in the United States that is all about anecdotes. You're talking about the Beige Book. Yeah, I never miss a chance to bring up the Beige Book.

1:22And no one says that we can't do a little of that beige magic looking at the Chinese economy too. Wait, Robert, are we doing this?

1:35It's the Beigie Awards China edition. That's right. Hello and welcome to Planet Money. I'm Darian Woods. I'm Robert Smith. The Beigies are our made-up awards show honoring some of the softer data that illustrates trends in the economy. It's named after a report the Federal Reserve puts out, which is called The Beige Book, and it's one of our favourite segments on Planet Money's daily podcast, The Indicator. And since the Chinese government has put a pause on releasing some of its economic data, the beige approach, looking at anecdotal and unofficial numbers, can help us understand what's happening in the second largest economy on Earth.

2:13So today on the show, we are bringing the Beiges to Planet Money. We're talking to people on the ground in China about their flagging economy, and we're going to dive in for a closer look at one of the most alarming indicators in China, the skyrocketing urban youth unemployment rate.

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3:17Earn unlimited double miles, a$300 annual Capital One travel credit, and access to airport lounges. Capital One. What's in your wallet? Terms apply. Details at CapitalOne.com. Welcome, everyone, to a very special edition of the Beigie Awards, this time for China. And when we were looking for anecdotes to help us understand China's economy right now, we couldn't help but think of our very own Emily Fang. And we decided to give her a runoff award. And yes, it's a little bit of self-dealing, but we want to hear from her. Emily is an international correspondent for NPR covering China. One reason the Chinese economy seems to be limping along without revenge spending is that international tourism is down.

4:00Emily noticed that there just aren't that many international tourists out and about, seeing the Great Wall and such. That is people from outside of China flying into the country to spend money. Yeah, they've dropped off a cliff. Friends of mine who normally would be going back and forth just don't really want to go to China anymore. And do you have any numbers that also show this? So the number that jumped out to me the most is that travel to China through travel agencies, people not traveling independently but booking their tours through a recognized company, that subset of numbers alone shows that only 52 ,000 people went to mainland China in the first quarter of this year.

4:34that's compared to 3.7 million people who traveled to China this way in the first quarter of 2019 before the pandemic hit. So you've seen a 99 % drop in people going to China through tour agencies. 99 % drop. That's wow. That's incredible. I mean, part of it, I think, is just the difficulty still of getting to China. But a lot of it is the political circumstances. It's people being really nervous about going. And a lot of people were traveling for work, honestly. And new New regulations and policies that have come out in the last four years have made people very wary of investing more in the country or sending their foreign employees there.

5:11So this includes fear that the government can at any time force cities to quarantine for weeks on end, and also from geopolitical tensions that have restricted business partnerships and collaborations. Well, thank you, Emily. That is really quite a shocking story of how tourism is really faltering in China at the moment. Thanks for having me and thanks for the award. No problem. Turning now to the winner of the very first honorary Beji in China, and we give it to an organization that goes by the name of The China Beige Book. Another fan of The Beige Book in China. We love to hear this. And accepting the award now on behalf of China Beige Book is Shazad Kazi.

5:54Congratulations, Shazad. Thank you very much. It's an absolute honor to be selected for this award here today by you all. Thank you. So we should explain to the audience what the China Beige Book is, because it is not a U.S. government publication. It's not a book, but it's a company? That's exactly right. You know, we are a private company that conducts large-scale data collection inside the Chinese economy. And the whole idea is that the Chinese economy is a black box. And we wanted to go in there and collect as much data as possible to understand what was truly happening on the ground. A passage that particularly struck us from the July China Beige Book report was this.

6:33Robert's going to read it. Quote, two-sided household spending on goods and experiences fizzled out in July. Some, quote, revenge spending industries continue to see strength as travel and chain restaurant sales jump dramatically. But other retailing weakened with auto sales decelerating most. One of the things that we've now seen played out is that where Chinese consumers have been willing to spend on travel, on hotels, on dining out, that sort of thing, they're spending on other big ticket items like cars, luxury goods, and so on and so forth, has been inconsistent. So you're not getting that powerful revenge spending story play out the way about seven, eight months ago, most people would have told you what happened.

7:21Well, it seems that a mistake that a lot of people make is that the Chinese consumer is just like the U.S. consumer. But U.S. consumers spend a lot on themselves and their family compared to the Chinese consumer. Just overall, right? That's exactly right. Not only are culturally Chinese consumers much more conservative in their spending habits and spending patterns, But the fact is, in China, you've seen no household-focused stimulus take place whatsoever. So that in itself was one of the biggest roadblocks or hurdles, I think, in this whole revenge spending thesis, which got largely unnoticed for some reason.

8:02Well, congratulations again, Jezad. Well-deserved. Thank you so much. Absolute honor to be picked by you for this award, and thank you very much again. You know, Darian, one big difference between the U.S. and Chinese consumers, Chinese people are big savers. The savings rate in China is just under 50%. You look at that rate in the United States, it's under 20%. So far, we've had anecdotes about fewer tourists traveling to China. We've seen an unwillingness to spend money on cars and other big ticket items. Now, let's get one more story from China, and this time from a hit restaurant in Beijing.

8:39We called up the owner, Nathan. Hey, yeah, this is Nathan. How are you? Nathan asked that we just use his first name. He thought talking, frankly, to Western journalists could be risky, and we agreed. Nathan's restaurant features fusion food, fancy Chinese with sort of a Western twist, and a lot of natural wine on the menu. And he's used to customers paying the equivalent of$100 or even$200 on wine alone. He says 2023 has been a real contrast to the years before. Before, for the weekend, Friday, Saturday, we easily could sell 30 bottles of wine easily or more. But now, like in the best day, we're selling maybe 20 bottles.

9:17So if we sell 20 wine, we celebrate. 20 bottles of wine is down a third. It's not good at all. That said, Nathan says he looks around and he doesn't see a calamity for all the restaurants in his region. You know, for noodle restaurants or traditional Chinese restaurants, they do really well. But for my type of restaurant, it really affects a lot because people really worry about their future, I think. Nathan's seeing cheap restaurants with lots of diners, but he says there's been a real pullback on spending on luxuries like the natural wine that he sells. Still, he's sticking in there. I'm kind of a person who has a passion for good food and for good natural wine.

10:00And I don't think I'm going to sell a crappy wine just for me to meet a major customer need. And that's not what I have to pass it for. Nathan is a culinary hero. He's going to persist. Yeah, sticking to his guns, that's what we support. And while that is it for the Beiji prizes, we still have one more China story to share. The big worrying indicator that China's paused publishing. And that's youth unemployment. After the break, Indicator co-host Waylon Wong and I will bring you that tale.

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11:20Easily track, block, or cancel recurring charges right from the Capital One mobile app. Simple as that. Learn more at CapitalOne.com slash subscriptions. Terms and conditions apply. In Beijing, about six months ago, Aze quit her job. And she didn't tell her parents. So I had to go out on time at eight o 'clock every morning and then appear downstairs in our house. Wearing her work clothes and a face full of makeup each morning, Aze pretended to walk to her old bus stop, and then she would keep walking. She'd get breakfast at KFC or McDonald's, then around 10, she'd go to a cafe, like the one we met her in.

12:04And it's here where she would usually take out her pencils and start drawing.

12:12Drawing is the best way to pass the time, in my opinion, because you'll spend most of the time drawing without even knowing it. Aze always wanted to be a cartoonist growing up. She couldn't quite get that job out of college, but she worked instead as a content editor for an entertainment news publication. And initially, she loved it. My job was so great. I was very happy every day and felt amazing when I produced good content. When I looked at the results of our output, I thought to myself, well done, it's worth all the effort. Well, it didn't last. Aza found herself hopping from job to job and ended up in a job that didn't give her a lot of joy.

12:55There was pressure from various targets, which made my boss quite stressed. And he passed that stress on to us. Our work life was like being on a horror cruise every day. So earlier this year, she quit. Now, Aze is one of tens of millions of young Chinese people who don't have jobs and aren't in school. In June, the urban youth unemployment rate hit 21%. And that's way up from pre-pandemic times. It's one in five 16 - to 24-year-olds who have looked for a job over the last few months but don't have one. And the numbers are so disconcerting that a few weeks ago, the Chinese government put a pause on publishing them, citing the need for a review.

13:35And Aza's story illustrates part of what is keeping that rate so high. When she was deciding whether or not to take on a new job offer, Aza reflected on work life in general in China at any workplace. In China, there's a schedule called 996. And that means starting the day at 9 a.m., finishing at 9 p.m., six days a week. And although this is technically illegal, very long hours are still common in China. And Aza was no exception. She'd had to take a lot of overtime. It was just too much for her. And so she told her parents she was still working and meanwhile worked on her hobbies instead. She grew plants, made necklaces, painted.

14:18I'd start a new hobby every time I've become unemployed. I'd see if I can find something I really like, and if it's possible to make that become my work. And you might be thinking, how can she afford this? Well, Aze doesn't have to pay rent or a mortgage, which is perhaps more common for young people in urban China than you might think. They're almost certainly going to be an only child on both sides of their family. Nancy Qian is a professor of economics at Northwestern University. She points to China's one-child policy, this brutal enforcement of long-term contraception, sterilizations, and huge fines for having more than one kid.

14:57The policy was in place in China from 1980 to 2016, which means that most people Azi's age are only children. And they'll have grandparents who are from the city. So what this means is that they're going to be inheriting a lot of real estate from their grandparents. Not to mention, you know, maybe savings that their parents have been accumulating over time. Nancy was born in Shanghai in the late 70s and as a kid moved to the U.S. with her family. But she goes back often and has younger cousins who have struggled with China's changing economy. As China's growth has slowed, entry-level jobs in law, finance, tech and government have dried up.

15:33White-collar jobs are incredibly competitive. It's the high-paying, high-skilled jobs that have been shrinking in numbers. and these are what the current cohorts of college graduate students have been trained for, what they're expecting, what they wanted. They're not there. And young people with degrees who can't get these jobs are often in this, what you might call, luxurious position of having other options. That's fine for them, but not for the wider economy. There are a lot of vacant jobs. In fact, the Chinese economy is having a hard time filling jobs in factories. So a lot of young people like Aza end up not working at all.

16:10That said, Nancy says, they are likely to face a lot of emotional pressure to find a job. They have their parents and their grandparents saying, you're being spoiled. Like, why are you not more successful? We've given you everything, right? What's wrong with you? Let us tell you how we made it, how poor we were. Even people with college educations at different points in time were probably shoveling manure on a farm. And that's why Aze kept the truth from her family, The China that her parents grew up in was just so different to hers. I mean, China grew at 10 % per year for almost two decades. But for some urban areas, we're going like at 20, 30 % per year.

16:53And to illustrate what that kind of turbocharged growth looks like, Nancy used the example of where she was as a young kid, in the French concession district of Shanghai. I lived in an extended family with around 10 people in three rooms, probably around 300 square feet. We had a flush toilet, so we were considered really rich. Wow. That was the marker of relative wealth at the time. Yeah, I felt really special. People living in those neighborhoods now, they're living in skyscrapers, surrounded by Louis Vuitton and Prada stores. There are Lamborghini car dealers left and right. I'm emphasizing this because the places that had the highest expectations about the future, they're being hit with unemployment.

17:33It's kind of a whiplash feeling. Yeah, and so I think that makes us concerned about the social ramifications. Nancy says these young people are both spoiled, in her words, and also miserable at the same time. There's this huge gulf between expectations and what kind of jobs are available. It's not a great idea, just as a society, to have young people feeling hopeless, you know, with no direction, in a funk. That's never good. Usually that translates into drugs and all sorts of social issues. In China, it's translating into a potentially huge problem for the economy. Tens of millions of young people out of the labor force might have serious long-term consequences.

18:18The best evidence we have, which is from the UK, suggests that one lost year of employment in your early 20s right out of college results to 13 to 21 % lower productivity and wages 20 years later. Wow, 20 years later. Yeah. When you graduate and you work, you're learning not just hard skills like how to use a particular machine or, you know, in tech, like programming, right? So those are like hard skills. You're also learning soft skills, like showing up to work, how to communicate to people who are your superiors and people who are your peers and people who you're managing. If you're doing well, how do you let that be known without being seen as a show off and a jerk?

19:06How to brag quietly. That's right. And if you don't learn those things when you're young, there is a sense that it's hard to catch up on those things later. There is a real concern that not working those lost years of work right out of college can have serious negative impact on your lifetime productivity later on, which is going to impact the aggregate productivity of the economy as a whole. Aza has a different view. Work is one of the only things that you can choose by yourself. And if you can't find your footing at work, then you don't have much meaning. Aza eventually got tired of all the questioning from her parents and lying to them.

19:49So she decided to confess. While her mother was watching TV, Aza said she hadn't been working. They said, that's okay. They very calmly accepted it. So I think they already knew. It was a bit of an anticlimax. You know, I have to say the fact that they didn't get really mad about it and accepted it, I think that's generational progress. The generations might be starting to understand one another. These original Indicator episodes were produced by Corey Bridges with engineering by Robert Rodriguez. They were fact-checked by Cooper Katz-McKim and Sierra Juarez. They were edited by Patty Hirsch and Kate Kincannon.

20:25I'm Darian Woods. This is NPR. Thanks for listening.

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