After Fiona Hu left her small rural hometown at the age of 18, she worked for a decade to open a beauty salon in Guangzhou province. But after 2 years of bad business due to the impact of the pandemic, she was deeply in debt and her dream today turned into a nightmare.
The 44-year-old woman shared: “Now, I have nothing but debt.”
Decelerated economic growth, due to the impact of restrictive measures to prevent the Covid-19 epidemic, has caused problems for Hu’s business and financial ability. Hu and her husband struggled to pay the bills for about a year. But as of May this year, they couldn’t afford the monthly mortgage payment of 9,000 yuan ($1,341). Their apartment will be sealed and put up for auction.
“I think I won’t be able to get out of debt for the rest of my life,” Hu said. “Everybody has a hard time, life is really tough.”
Rising debt and falling incomes aren’t just a problem for small business owners in China, who have been hit hard by sluggish economic growth in recent months. The same story also happened with Tang Yin – a 36-year-old secretary working at a small technology company in Guangzhou.
Tang is trying to keep working, but her monthly salary has dropped from about 5,000 yuan to about 4,000 yuan. Her mother is retired, but recently had to use all of her savings to help pay off a consumer loan and credit card of 110,000 yuan.
Tang and Hu’s story illustrates the growing insecurity of China’s middle class. The unstable economy for 2 years broke the idea that if you just work hard, your income will increase.
Faced with an uncertain economic outlook, Chinese households are cutting back on spending. According to Shen Jianguang, chief economist at JD Digits, the fintech arm of JD.com, new household loans in the first five months of this year hit 1.33 trillion yuan – the lowest level in a decade.
Short-term household loans totaled 192.7 billion yuan, Shen said, the lowest in the January-May period since 2009. The trend shows that domestic consumption activity has weakened. . Medium and long-term loans were also at a six-year low of 1.14 trillion yuan in the first five months, as demand for real estate declined.
He added: “Chinese households are trending towards ‘austerity.’ Based on the trend seen in developed economies, when households start to reduce spending, the impact The impact on economic growth will become more persistent and severe.”
According to Shen, China needs to come up with bigger stimulus policies to support income, employment and consumer spending.
According to a quarterly survey by the Institute of Social Sciences Survey at Peking University and the Ant Group Research Institute, operating conditions for MSEs continued to deteriorate in the first three months of 2022. Year-on-year Last year, MSEs saw significant declines in operating profit, cash flow and margins.
About 38% of MSEs have extremely low cash flow and this will make them less likely to last for less than a month, up from 30% in the first quarter of 2021. Meanwhile, the survey results will be worse in the second quarter of this year, when major cities in China blockade to prevent epidemics.
Household income will increase this year at a slower rate than last year. The reason is that the Chinese economy also faces “headwinds” both at home and abroad, including a resurgence of Covid-19, supply chain disruptions, and increased uncertainties from conflicts between Russia – Ukraine.
According to a report by Moody’s Investors Service published at the end of April, the average selling price of a residential property in China is also expected to decline slightly in 2022, as developers lower prices to boost sales and cash flow. In addition, demand from buyers has also eased, although stimulus measures have been introduced in recent months.
Amid the turmoil, many of China’s small and middle-class business owners predict the future will be bleak.
“What we don’t have right now is confidence, the expectation that wages and the domestic economy will continue to grow,” said Zheng, a civil servant in Shenzhen.
He said that the salary in the department where he is working has decreased by about 30% this year. This will affect his ability to pay the mortgages on two properties he borrowed using loans based on family income.
Local governments in China are cutting a range of bonuses, part of an effort to reduce cost pressures.
Daisy Deng, a lawyer in Guangzhou province, said she is being more careful in spending and giving up her intention to buy a new car due to the difficult economic environment. “People’s beliefs about income and ability to repay debt are changing rapidly,” she said.
Source: Cafebiz
Source: Vietnam Insider