The city that embodies China’s economic stagnation

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ohthan usual In the evening the Zhengzhou manufacturing district should be full of workers going back to their bedrooms. For more than a decade the 13m city in central China has been home to Foxconn workers who assemble iPhones in a local megafactory – meaning activity at hole-in-the-wall restaurants and dank internet cafes provide an informal measure of population health. local economy. But now one of the main sleeping areas is empty. Workers are removing the remains of internet cafes and removing sofas that once furnished dorms. Many workers fled, never to return, in October last year, escaping from a lockdown that confined them to their dorms, sometimes ten to a room, for weeks on end.

Zhengzhou has become one of the most troubled cities in China. gdp Each person in Henan province, where it is the capital, is 27% below the national average. The city’s problems – including job shortages, falling property prices and banking instability – are prime examples of those facing China in general. They also came out earlier than those in much of the rest of the country. Therefore, Zhengzhou has become a laboratory for potential treatments, some of which have since been applied at the national level.

China’s recent economic data, released on September 15, indicate that the economy is at least beginning to stabilise. The annual growth rate in business output rose to 4.5% in August. Retail sales were up 4.6%. Both beat analysts’ expectations. But the floor space of new homes being built fell 7.1% in the first eight months of the year, continuing the decline. And even if the situation has begun to stabilize, Zhengzhou’s experience shows how difficult it will be for China to escape from its negative economic impact – and how long it will take to recover.

The region’s problems began to accelerate in 2020, with the foundation of Yongcheng Coal, a local energy company. The following year floods swept the city, submerging a metro line and killing nearly 400 people. Local officials, including the party secretary, were sacked for hiding the true number of casualties. In 2022 bank depositors across the country found they could not withdraw their money from several banks in the province, leading to weeks of protests outside the central bank’s Zhengzhou branch China. The city also received difficult treatment during covid-19. Locals shake in memory of a four-month lockdown endured before “zero-covid” policies were abandoned.

Photo: The Economist

As one disaster after another has visited the city, the real estate market has worsened. China has been in crisis in real estate since 2021. Developers have come up short of the money needed to finish apartments. And since most buyers pay upfront, they have found themselves taking out mortgages without getting homes. Last July dissidents began monitoring the mortgage boycott – and found that Zhengzhou was at the center. By some accounts, 600,000 local homebuyers have bought apartments in troubled developments. endresearch firm, estimating that one in 13 homes were affected.

The situation has forced local policymakers to take action. Henan’s plans to reduce unemployment have included a 100-day military-style campaign, which began in May and ended recently. It aimed for a “zero-dynamic cleansing” of youth unemployment, borrowing language from the zero-covid policy. Staff at universities were told to identify young people who were struggling to find jobs and connect them with public institutions, state-owned enterprises and even employers in the country. As the campaign has only just ended, the results are not yet clear – but it is likely that we have not discovered thousands of new employment opportunities. With a poor job market and 870,000 new university graduates this year alone, Henan’s public servants would have had to work overtime to make even the slightest dent in the problem.

Other reforms are a little more thoughtful. In March Zhengzhou became the first major city to lift restrictions on the purchase of second homes, in an effort to boost demand. Last month, it led the way again as the first city to launch reforms that directed banks to lower mortgage rates, exempted new graduates from application fees and gave provided subsidies of up to 30,000 yuan ($4,100) for the purchase of a home for families with three children. It also introduced a rule that prevented people from reselling their homes within three years of their purchase.

In early September it seemed that work had started again on some of the biggest property developments in the city. One of these, named Qifucheng, has been suspended since 2019. The development, with more than 6,000 residential units, is known as Zhengzhou’s largest. lanweilou, or an abandoned construction site. Last year the developer behind it was accused of putting a few workers on site to make it look like work was going on, perhaps to avoid prosecution. Now trucks are moving in and out of the site, and many workers are working. If work on similar projects starts again, people looking for new apartments may even lose their trust in the sector. This will take time, however. Property prices in the city are still going in the wrong direction – they fell 0.5% month-on-month in August – which is very ill for a quick recovery in other cities in the second tier.

Perhaps Zhengzhou’s most daring reform was to ease the restrictions of the húcou, a home recording system. A year ago city officials announced that migrants with local jobs and residences would be eligible for registration required to buy homes or access education, abandoning a system that has created a two-tier society across China. In theory, eliminate the húcou it could solve many of the city’s problems. Talented young people who want to live in a big, central city may move to Zhengzhou. Some might even start a startup, attracting workers from all over the country. All of this should help boost real estate prices. But since policymakers introduced the reform, other areas have made similar moves, increasing competition for potential entrants. In August, for example, Jiangsu, a wealthy coastal region, said it would relax húcou requirements for many of its cities.

After months of delay, the central government has begun to show that they are paying attention to the country’s economic stagnation. At the same time, the central bank has loosened monetary policy. But questions remain as to whether China’s leaders will be able to resolve local crises, which are necessary if the country is to build long-term growth. So far, the message has been that local leaders must solve many of their own problems. It’s unfortunate, then, that Zhengzhou’s experience suggests that doing so will be a struggle.

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