China’s economy suffers blow as factory activity slows

Xi Jinping  Photographer: Kevin Frayer/Getty Images
Published March 1, 2024

(Bloomberg) — Xi Jinping’s consolidation of power has cleared the path for him to break China’s cycle of debt-driven growth and put the economy on a more sustainable footing. But there’s a big problem: He’s failing to convince the nation that’s a good idea.

As the world’s second-biggest economy undergoes a prolonged slowdown, Xi’s move to shun the old playbook of unleashing broad stimulus is spurring discontent. The China Dissent Monitor, a project of US-based Freedom House that collects information on protests, says economic demonstrations have remained elevated since August, with many focused on labor disputes and a real estate crisis that’s cutting into household wealth.

Thousands of angry retail investors last month flooded the US Embassy’s Weibo page with criticism of the government’s handling of the economy in the midst of a $7 trillion stock rout. Elsewhere on the platform some even insinuated that only a change in the top leadership would spur markets — comments that managed to skirt censors before they were eventually taken down.

Compounding the problems is a broad drop in wages among civil servants who have seen bonuses slashed in recent years as indebted local governments struggle to earn enough revenue. That risks disenfranchising the vast bureaucracy charged with implementing Xi’s vision on the ground.

“As long as my income was decent, I didn’t complain,” said Zhou, a mid-level policeman in a southwestern city who asked to be identified by only his surname, adding that cuts have reduced his bonus by 30% from before the pandemic. “But now the economy is in bad shape, the leadership needs to show us some hope.”


While the growing angst doesn’t pose an immediate threat to Xi, who has amassed more power than any Chinese leader since Mao Zedong, broader discontent threatens to exacerbate weakened confidence as consumer prices drop at the fastest pace since the global financial crisis. The domestic strife comes as foreign investors turn away from China, with direct overseas investment in 2023 slumping to a 30-year low.

At the same time, there are fewer checks on Xi’s policymaking. The Chinese leader has upended Communist Party norms since consolidating power and installing a coterie of loyalists in 2022, marking a shift from the more collective decision-making that helped propel China’s economic rise. That is also making Xi more of a target as his push to deleverage the property sector leads to a slowdown that’s starting to impact the wider population.



RELATED: China’s economy suffers blow as factory activity slows

Published March 1, 2024

China’s economy showed further signs of sluggish momentum as factory activity slowed, increasing pressure on President Xi Jinping take stronger action to boost growth days before Beijing opens its annual flagship political event.

The country’s official manufacturing purchasing managers’ index stood at 49.1 for February, according to figures released on Friday, slipping from a reading of 49.2 in January and in line with a Reuters analyst forecast.

A reading below 50 marks a contraction from the previous month. The consistent weakness in China’s manufacturing PMI — which has been in contraction territory for five consecutive months, and every month since March bar September — comes as Beijing is due to open the annual session on Tuesday of the National People’s Congress, its rubber-stamp parliament.

Thousands of delegates from across the country will descend on Beijing for the meeting, where the ruling Chinese Communist party will announce its targets for economic growth, fiscal stimulus and military spending for the year, as well as possible senior personnel changes and policy priorities. T

he meeting comes as policymakers are grappling with a multiyear slowdown in the property sector, entrenched deflation and poor investor sentiment, with foreign direct investment hitting a record low, which they are trying to offset by focusing on high-end manufacturing and infrastructure investment.

“The combination of weakening growth, slumping confidence, entrenched deflation, a real estate meltdown and swooning financial markets ought to be a clarion call for policymakers to act decisively and soon,” said Eswar Prasad, professor of economics at Cornell University.





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