In restaurants, fake sets are trending, and Michelin-starred establishments are closing one after another. It is said that the situation is more serious than in Japan, where deflation is coming. Is this true? There is a country where the fear of deflation is looming. It is said to be more terrifying than Japan's lost 30 years. This is about China. I looked into the situation in China to understand why such statements are being made, and the condition of the youth is alarming. There are job seekers who print their resumes on T-shirts and wear them, and some even post job advertisements on the walls of subway stations. A new term has emerged to refer to specific young people, which means the soft tail and rotten tail. This indicates that more and more young people are living off their parents' financial support due to unemployment. Among them, the term is often used to refer to highly educated unemployed individuals. In China, the youth unemployment rate is staggering. Last July, the youth...

The unemployment rate reaches 17.1%. Even those who are employed are facing salary cuts of more than half, leading to tragic incidents where individuals take their own lives. The problem does not stop there; China's consumer market is collapsing. Stores are closing one after another. In 2023, 1.36 million restaurants closed, and already in the first half of this year, over 50,000 have shut down. There are even reports of high-end Michelin restaurants defaulting on their rent and fleeing, which is truly unfortunate. 

Hello, I am Hailin, a student studying in China for six years. These days, when I go out on the streets of China, I am shocked to see that there are only a few places that used to be crowded with people. The popular shopping malls I frequently visited have also gone out of business. Perhaps because of this, there are many restaurants in China offering food at lower prices.

These days, there’s a trend on social media regarding meal options called the Broke Person's Set. It has become quite popular among young people who have relatively less economic freedom, as it offers practical meal solutions. My Chinese friends often send me messages about where to find discounts and where to eat. For example, there's a guideline circulating on Chinese social media about budget meals. On Mondays, you can get a buy-one-get-one-free set at McDonald's, on Thursdays, you can enjoy discounts at KFC, and on Fridays, there's half-price deals at Burger King, among other shared discount information. 

Hello, I'm Gyeong-Ran, a travel YouTuber. I'm currently in Shanghai, China, and I've heard that KFC is selling the Gourmet menu, so I'm heading to a KFC here in Shanghai. They have a weekend special menu, and you can choose from various burgers. Honestly, it doesn’t seem like something you would eat alone; it feels like too much for one person.

Selecting it costs only 6,000 won, which is about 29.92 Korean currency. Oh, that's really cheap. Even if a man with a good appetite comes, there is enough to be full, and honestly, I can't eat anymore because I'm so full. China has been a country that has rapidly grown since the economic reform and opening up in 1978, recording double-digit economic growth rates annually. However, this year, in the first quarter, it recorded 5.3%, and in the second quarter, 4.7%, putting it at risk of not achieving the Chinese government's low target of 5% for this year. Looking at China's economic indicators, the consumer price index recorded a negative from October 2023 to last January. The manufacturing purchasing managers' index, which examines the state of economic expansion and contraction, has been continuously below the benchmark of 50, indicating economic contraction. In fact, the world expected that after the pandemic, the economy would revive when China recovered. However, contrary to expectations, China is facing such a crisis.

What could the reason be? First, we can mention the aftereffects of the pandemic and the US-China conflict. During the pandemic, China chose to completely lockdown cities, which led to factory closures. This strict lockdown negatively impacted the Chinese economy, causing economic slowdown and increased debt. Meanwhile, the trade conflict with the United States intensified, leading many global companies to reduce their reliance on China. As the global supply chain was restructured, China's export industry suffered significant blows. 

Secondly, the declining population in China is also a problem. The population has been decreasing consecutively in 2022 and 2023. In 2022, the number of births in 2023 decreased by 540,000, marking the lowest level ever recorded. As the population shrinks, the labor force is becoming insufficient, and with the acceleration of aging, social welfare costs are rising. However, the most significant reason is something else entirely.

The Chinese real estate market is collapsing, and as it does, property prices are sliding down. The average housing prices in 70 major cities have been on a downward trend since 2019. As of July, compared to a year ago, new home prices have decreased by 5.33%, while second-hand home prices have plummeted by 88.2%. This decline in prices must be a huge shock for the Chinese people because real estate holds a different significance for them. If we look at the proportion of real estate in China, the real estate market accounts for about 25% to 30% of China's GDP. Additionally, housing represents approximately 70% of household assets in China. In fact, originally, all housing was owned by the government; people could only buy homes if the government allowed it. However, with rapid economic growth and urbanization, the limitations of housing supply became apparent. Ultimately, the government allowed individuals, specifically developers, to purchase homes.

The market allows transactions, and the expectations for national bank and government-backed loans for large construction projects bring many jobs. The Chinese government has also realized that real estate development can easily stimulate national economic growth. In China, real estate has become more than just a place to live; it has become a symbol of power. So, why is the Chinese real estate sector facing such a significant crisis? First, we can point to the serious overinvestment by developers. This was exacerbated by the pre-sale and post-construction system. For example, developers received advance payments from buyers to acquire land for new projects and then used the funds generated from these projects to purchase additional land. The excessive investment by developers, along with the housing boom, has led to rising home prices. However, this increase in prices has become excessively high. According to European financial reports, since 2008...

By 2018, it can be observed that housing prices in Beijing, Shanghai, and Shenzhen had increased on average sixfold over the past decade. In order to deflate the real estate bubble, the government dealt a decisive blow to developers in 2020 by implementing measures that prohibited bank loans and loan extensions to developers with high debt ratios. As the flow of funds was cut off, it became difficult for these developers to repay loans or bonds. Ultimately, by the end of 2021, Evergrande, the largest construction company in China by asset size, declared bankruptcy on over $300 billion in debt. This amounts to approximately 400 trillion won in Korean currency, a staggering figure considering that South Korea's 2024 budget is about 657 trillion won. When real estate developers collapsed, those who had lent money to them began to crumble as well, especially local governments that were heavily in debt.

The government is being pointed out as a major problem. Local governments, which have difficulty issuing bonds, have been raising funds by selling state-owned land use rights. The more expensive the land, the more revenue local governments generate. Therefore, as the real estate market has cooled down, local government revenues have also plummeted. Furthermore, with massive debts accumulated due to large-scale infrastructure investments, 30 out of 31 local governments are now running deficits. In 2022, local government debt reached 76% of GDP, and in the first half of this year, the fiscal deficit amounted to approximately 372 trillion won. The local government debt bomb has ultimately emerged as a trigger for the Chinese economy. Given its scale, the economic downturn originating from China is spreading globally. The iron ore market, which is heavily reliant on the real estate sector, has also been severely impacted. Australia, which exports the most iron ore to China, has...

As construction has been halted and the demand for iron ore has decreased, it is anticipated that there will be a reduction in federal tax revenue and an expansion of the fiscal deficit. Additionally, China's dumping exports are becoming a problem. China is exporting goods at low prices that they couldn't sell to their weakened domestic consumers. When products are released at prices lower than the normal market rate, the existing market will be adversely affected. Several countries, including the United States and the European Union, are imposing additional tariffs on Chinese products in order to prepare countermeasures. The luxury goods market is also struggling. While Chinese tourists used to enjoy shopping-oriented group tours, nowadays they prefer individual tourism, taking certification photos at popular attractions. As the purchasing power of wealthy Chinese consumers declines, luxury companies such as LVMH, Rolex, Richemont Group, and Swatch Group have suffered a hit to their sales.

The automotive sector, which had a high dependency on China, has also suffered significant damage. In particular, Germany, which owns brands like Porsche, Volkswagen, BMW, and Mercedes-Benz, has seen a sharp decline in manufacturing production, leading to an economic contraction. South Korean companies with a high dependency on China have also been heavily affected. Notably, chemical and steel companies with a large share of revenue from China fall into this category. Additionally, firms like LG Household & Health Care, Shilla Hotel, and Shinsegae, which have a substantial portion of their consumer base in China, have also shown a decline in stock prices. Many observers believe that the South Korean economy, which has grown through exports to China, cannot avoid significant burdens. The Chinese government is taking steps to support the purchase of unsold apartments, but there is also a perspective that the economic entities that have inflated the real estate bubble should demonstrate responsible behavior. There are various predictions about how China will overcome this economic crisis.

There are many opinions suggesting that our country should reduce its excessive dependence on China. On the other hand, as more countries impose regulations on China, there are discussions that our country might benefit from this situation, leading to rising expectations. That concludes my talk for today. What did you think?

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