The middle class is starting to fall back into poverty

Luo sir's words

2024-06-25 16:16Posted in Sichuan Workplace Creators

If an economy's growth does not ultimately come at the expense of the majority, the backlash will come very quickly.

On December 7, 2022, the mainland fully lifted various lockdowns of the new coronavirus, ending the three-year zero-COVID strategy. At that time, the CEOs of large companies at home and abroad predicted that China's economy would soon usher in "revenge consumption", and businesses invested heavily to expand their business scope.

However, since the lockdown was lifted on December 7, 2022, topics such as consumption downgrade, middle-class return to poverty, youth unemployment rate, deflation, 35-year-old crisis, and cliff-like salary cuts have all occupied the hot search list of the domestic Internet at different points in time.

From optimism to pessimism, it often only takes a moment.

As great as there is people's optimistic expectations, so much is the pessimistic loss that comes with them.

What is the middle class?

According to a research report released by Beijing Normal University in 2019, there are 70 million people in mainland China with an average monthly income of more than 5,000 yuan, and the media subsequently classified this group as "middle class".

What follows is the optimistic consumption upgrade layout of large companies for the future expansion of the middle class. Not only Alibaba, but also foreign consumer companies such as Starbucks and Sam's are also laying out for the 70 million and still expanding middle-class group, all for the sake of the consumption upgrade brought by the more middle-class for granted.

But history doesn't always move forward, and neither does the economy.

From January to April this year, the mainland's personal income tax was 500.7 billion yuan, a year-on-year decrease of 7%; In the first two months, the national personal income tax was 326.2 billion yuan, down 15.9% year-on-year.

Almost five years have passed from 2019 to 2024, and the middle class has not shown significant growth, but on the contrary, all data show that this group is not only not expanding, but showing signs of shrinking.

Consumption downgrade has become a trend.

From a macro perspective, the mainland's GDP growth rate was 6.6% in 2018, falling to 5.2% in 2023, and is expected to grow by 5% this year, with a slowdown in GDP growth and the consequent collapse of consumption and the middle class.

At the micro level, more people are experiencing difficulties in employment, declining incomes and even stagnant growth, which further highlight the structural problems facing the mainland's macroeconomy, as many economists at home and abroad have called for, GDP growth should be contributed more by domestic household consumption, rather than relying on past exports and investment.

But the downgrading of consumption itself is an individual choice under the market.

When most people choose to downgrade consumption and slow down spending, it is reflected in the macro economy, that is, the weakness and malaise of consumption.

Why is the economic recovery sluggish?

To answer this question, the answers can be varied.

In addition to the decline in housing prices, which has affected the most important part of household assets, resulting in a contraction in consumption, the continuous withering of more industries has also further affected people's consumer confidence.

In 2021, the double reduction strategy for the education and training industry will also cause a large number of off-campus education and training enterprises to lose money or go bankrupt. There are tens of millions of people working in the education and training industry in mainland China, and although there are still a large number of small education and training institutions or individuals in places that cannot be seen, on the bright side, this industry has lost hundreds of billions of dollars or even more possibilities.

If we take the new crown virus as a time node, even today in 2024, many of our data still have not returned to the same period in 2019.

Although there is indeed some revenge consumption after the new crown virus is lifted, more consumption is "lost is lost" and can hardly be recovered.

A person gets a haircut once a month and eats three meals a day, and the lost consumption scene cannot be made up; Even today, after the lockdown is lifted, a person will not get an extra haircut and eat an extra meal because of the unblocking.

Lost consumption cannot be recovered, and consumer confidence is slowly eroded under such a long cycle.

Compared with the stagnation of economic activity during the coronavirus, there will certainly be a rebound in the economy after the lockdown is lifted, but the rebound is not a return to the previous position, and what is lost may never be recovered, not only psychologically, but also economically.

One person's consumption is another person's income, and when consumption begins to slow down and slump, people's employment and income will be affected, and the two affect each other as cause and effect, superimposed on the downward trend of real estate, which together leads to today's consumption downgrade and the middle class back to poverty.

The role of real estate in this is comparable to that of employment and consumption.

In the past, due to the relatively few investment tools in the mainland, and the assets could not enter and exit freely, more people chose to buy houses and save, so the proportion of houses in the total household assets has been very high, as high as 70%, and with the impact of the Evergrande and Country Garden incidents, housing prices have generally fallen, the total value of household assets has been shrinking, and the wealth effect has shrunk, and it is reasonable for consumer spending to be sluggish.

What's more, once people's consumption preferences are solidified, they may never go back.

For example, during this year's May Day period, although the number of tourists and total consumption in the mainland reached a new high, in terms of per capita consumption, the per capita consumption of more than 600 yuan was still less than the same period in 2019.

When people are accustomed to coping with life in a more frugal state, then it is undoubtedly fatal for the macroeconomy, and the modern business society is built on consumption, and when people's consumption spending begins to slow down, the crisis also begins to brew.

As the domestic ceiling continues to appear, more and more companies begin to choose to go overseas and look for a broader world.

Among them, Pinduoduo and ByteDance's overseas achievements are the most eye-catching, of course, in the most tragic years of domestic smartphone battles, Transsion Mobile has also opened up its own track in Africa.

It is a last resort for companies to go overseas, but for domestic consumers, going overseas often only means the company's income, and this kind of income is often difficult to feed back to the domestic economy.

The most critical thing may be the establishment of a social public security system, which is almost the cornerstone of the macroeconomy.

The slowdown in economic growth and consumption bottlenecks we encounter today may never have been encountered before, and when the uncertainty and insecurity of consumers begin to widen, the social public security system should provide them with a minimum guarantee for their consumption and more risk-taking behavior.

But obviously, there is very little we can do in this area.

It is from worries about the future, pension, insurance, unemployment, these factors also determine whether people save more or consume more.

Eventually, our pointers had to go back to the 90s, and more and more people began to feel that we were now in a similar predicament to the 90s in Japan.

But the complexity and severity of the problem we face may be even more critical than in Japan.

Insufficient consumption means that people's income growth is insufficient, and even the number of new jobs is insufficient.

There is no income without consumption, but there is no consumption without income; The crux of the matter may also be that after more than 40 years of rapid economic growth, if the wealth is not hidden in the people, then where does it go?

end.

Author: Luo sir, concerned about the economy, society and everything in our world, curious about the logic behind the development of things, optimistic pessimist.

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