Companies, workers struggle as cracks appear in China’s economy
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Cracks are opening in China’s mighty economy: investors are backing away from deals, factories are moving abroad and companies are shedding jobs. The world’s second-largest economy is losing steam, hitting its slowest growth in almost three decades last year, and flagging further in recent months. While gross domestic product grew at 6.6% in 2018 – a rate that would be the envy of most nations – China’s efforts to cut its debt mountain have weighed on the economy.
Private businesses in particular face new hurdles as costs rise and financing becomes harder to come by, while the trade war with the United States has not helped.
Here is a look at some of the struggles faced by Chinese companies and people:
Game over for gamers
Feeding China’s addiction to video games seemed an easy bet for Beijing Yixin Technology, a tech startup behind the mobile game Farm Take Home.
The game allows players to harvest wheat, raise chickens and plant apple trees – a bucolic refuge from the pressures of urban China.
But in real life, the tech firm has struggled to find investors.
“In December our company’s funding ran out, we had an investment lined up, but the money never came through,” said chairman Cui Yi. “This month I arranged another investor, then he backed out too. I think we can’t hold out.”
His company is not alone.
Venture capital funding dried up at the end of last year. Total investment in the fourth quarter fell 13% from a year earlier, according to data from Preqin market research.
Policymakers are partly to blame, pushing a war on debt and financial risk that has cut the funding flowing into investment firms, industry insiders say.
Another government diktat halted new video game approvals for months – officially due to youth gaming addiction concerns – sending firms like Beijing Yixin into a deep freeze.
Trade war
“In December our company’s funding ran out, we had an investment lined up, but the money never came through,”
Other companies are facing the fallout from the trade war with the United States.
More than a handful of exporters have sought to get around US tariffs by building factories outside China, according to a review of public stock filings.
Others are sending workers home early for Chinese New Year or cutting overtime.
Last month China’s exports fell.
“It has hit our profits,” Harry Shih, manager of Runfine Bearings in eastern Zhejiang province, said of the trade war.
Washington slapped 25% taxes on many types of ball bearings in July. Shih said he had shared the cost increase with his customers, roughly half of whom are from the US.
“Business is going down for most companies including factories. Like me they have the same problems, profits are going down” as costs rise, said Shih.
Job crunch
Official data shows unemployment at a stable rate, rising slightly to 4.9% last month. But independent data paints a different picture.
In October-December advertised tech positions fell by 20% from a year earlier, after declining 51% in the third quarter, according to data from Zhaopin, China’s largest recruitment website and Renmin University.
China’s economy “faces downward pressure, and to some extent this pressure will be transmitted to the job market,” said Meng Wei, a spokeswoman for the National Development and Reform Commission, China’s state planner.
A lawyer who consults on labour disputes, Guo Xuehai of Beijing Zhonghai Law Firm, said, “there are definitely more employees coming for help than before,” but added this was usually the case at this time of the year.
Questions & Answers
Q.What is the main reason for the slowdown in China's economic growth?
What is the main reason for the slowdown in China's economic growth?
China's efforts to reduce its large debt pile have affected the economy. Also, private businesses face new challenges from rising costs and difficulty in securing financing, while the trade war with the US has also had a negative impact.
Q.How has the trade war specifically affected Chinese companies like Runfine Bearings?
How has the trade war specifically affected Chinese companies like Runfine Bearings?
The trade war has reduced profits for companies like Runfine Bearings, whose manager stated their business is declining due to increased costs from US tariffs. They have shared these increased costs with their customers.
Q.What challenges are new tech startups in China facing?
What challenges are new tech startups in China facing?
New tech startups are struggling to find investors, with venture capital funding decreasing significantly. A government freeze on new video game approvals, alongside the war on debt, has also impacted them.
Q.Does official data align with independent reports on China's job market?
Does official data align with independent reports on China's job market?
No, official data shows stable unemployment rates, rising only slightly. However, independent data indicates a significant decline in advertised tech positions in recent months, suggesting a different picture for the job market.
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