The end in nigh!!!! The stock market is crashing, the currency is being devalued, the media is calling this the end of the Chinese economy. Of course, we’ve heard this kind of talk before but the predictions of doom and gloom are at an all time high.
But fear not dear readers, Zhoustradamus (the horrible Zhou puns will not end!) is here to talk about what is actually happening on the ground and try to make sense of what is likely to unfold here as the economic slows down. And yes, the economy is slowing down.
I’m tightening my belt by one loop so I don’t feel hunger pains.
The Big Five
Something that most people don’t understand about China is that the yuan is not quite real money. It doesn’t flow in and out of China in the way a “normal” currency in an open country would. You can’t convert it easily. This limits the investment opportunities for hundreds of millions of regular Chinese citizens and influences what is possible in the near future for China. Another little know fact is how much money Chinese people save. Almost every single Chinese person living above subsistence levels saves money, lots of money, and invests it in one of five places. Each of these places/markets will be affected by the slowdown a little bit differently. Here are the five major places Chinese people stash their money and what the future may hold.
The stock market:
Not connected to the real economy in any significant way. PE ratios that are way out of line with traditional stock markets. The faith of the boom has long been destroyed – despite government attempt to prop it up – and, to quote the honorable Clubber Lang, “I predict pain!”. You’d be better off playing the baccarat tables in Macao because the Chinese stock market is nothing but a big, fat, risky gamble. Chinese people are going to stay away. When big investors can finally sell stocks again, they’re going to get out. You should probably stay out too unless you love action and risk. But seriously, go to Macao. It would be more fun and will have better odds.
The housing market: Doom an gloom as predicted?
Zhoustradomus thinks not. Chinese people love houses, they’re obsessed with owning houses, they pick up chicks with houses, they need the idea of owning a house to get them out of bed in the morning. And when things go bad, Chinese people rush to safety in the housing market. There is a lot of cash in this economy, it must go somewhere and the housing market is a sure thing because Chinese people are crazy/stupid/insane about owning houses (which they only kinda sorta own anyway).
Beijing, Shanghai, Hangzhou – places like this may see more limited housing price growth because they are already over priced. With price to income ratios above 30:1, it’s hard to imagine them going up a whole lot more. Suzhou, on the other hand, is in a full scale house boom explosion. With a PI ratio somewhere in the 15:1 range, Suzhou has plenty of room to run, and running she is. Prices are already up around 25% in the last three months. SIP is really going crazy. The housing agents can’t keep their houses in stock. Expect that number to keep on rising as outside money chases profits and pours into the city.
You can also expect your rent to go up another 10-15% whenever your lease expires. Sigh.
AMF: The A stands for Adios. You figure out the rest. You can say AMF to the cash sitting on the sidelines here in China. Let the capital flight begin. The point is that the rich and those with the ability to use their companies and financial resources to get their cash out of China are doing so every chance they get. The yuan is taking a beating and I’m making less money in USD every day.
Things look bad…
In the short term, this is bad for us foreigners. We get paid less. It hurts. But if the current runs all the way down to 7 RMB to 1 USD (it’s around 6.58 today), you can demand more money to try to get back to what you were being paid 3 months ago.
The Bank: You get 4+% for sticking your money in the bank. That’s a whole lot better than the 0% you get in the states. Sadly, these rates have been dropping. Expect more reductions in that rate to stimulate spending. This makes Zhou unhappy.
Invest in local businesses: Yeah, that will slow down. If you’re an expat, I doubt you’d be doing this anyway. That’s a great way to get screwed out of all of your money.
Other trends that are likely to occur in a Chinese economic slowdown:
Adios bling bling culture: The corruption crackdown was the first blow, the economic slowdown should be the knockout punch. Thank God for small miracles. The Chinese internet is already starting to attack those who flaunt their wealth on wechat. That’s always the first step to a new round of pretend austerity from the rich.
These ridiculous dowries and weddings will continue, just not in such a flashy way. Time to go under the radar, rich people, or prepare for a public shaming, Chinese style.
Goodbye coffee shops: Could there be more coffee shops here? You can expect many of those, and other similar businesses, to start closing soon. The not very busy restaurants have been closing left and right in the last couple of months. Expect a lot more of this.
Don’t let the door hit you on the way out, FBH: FBH stands for failures back home – AKA the very strange foreigners who probably couldn’t get a job at McDonald’s back home but are living the dream here (and acting like douche bags the whole time). You know what I’m talking about. I bet there is a very clear picture of a coworker or neighbor in your mind right now…but I digress.
Economic slowdown means efficiency, fewer jobs and more competition. Finding a job is going to get harder, you’ll need more qualifications and you’re personality will actually count when you interview for a job. This means less weirdos making the rest of us look bad.
The nail in the coffin of the party scene: One of the first things to go when money gets tight is your discretionary party budget. Expect the already super lame Suzhou party scene to basically flat line. Hopefully, that nasty club Pravda will close down. Pravda is the least fun busy club I’ve ever been to anywhere in China. I’d rather go to any bar or even a full Chinese club than that palace of sexual assaults. Gross. We deserve better than that. You can also expect good party cities like Shanghai to quiet down a little. It sad but true – China really was more fun back in the day.
No. Just no.
Hello Zara and H&M: This a slowdown, not a recession or depression. People are still going to shop. Cheap and trendy will rule the day. I wonder what’s going to happen to that super expensive mall in Times Square. You know, the one with every luxury brand on planet earth and even the cheapest sweater is 2,500 RMB. How the hell is that place going to stay open?
The new Chinese reality:
Steady, restrained development, limited consumer spending growth, wasteful businesses shutting their doors – that’s the new reality we are facing in China. Doom and gloom? No. But it is still a major change from the last 30 years of the full out economic boom that Chinese folks seem to think is normal economic growth. So, on behalf of the citizens of the rest of the industrialized world, let me say ‘welcome to our world, China’. This is what living in the modern world actually feels like. You’d better get used to it.