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Businesses struggle as cracks appear in China’s economy

  • Published at 05:00 pm January 27th, 2019
The number of people seeking arbitration in China has gone up as more companies experience difficulties in funding AFP

The world’s second-largest economy is losing steam, hitting its slowest growth in almost three decades last year

Cracks are opening in China’s mighty economy: investors are backing away from deals, factories are moving abroad and companies are shedding jobs.

The world’s second-largest economy is losing steam, hitting its slowest growth in almost three decades last year, and flagging further in recent months.

While gross domestic product grew at 6.6 % in 2018—a rate that would be the envy of most nations—China’s efforts to cut its debt mountain have weighed on the economy.

Private businesses in particular face new hurdles as costs rise and financing becomes harder to come by, while the trade war with the US has not helped.

Feeding China’s addiction to video games seemed an easy bet for Beijing Yixin Technology, a tech startup behind the mobile game Farm Take Home. 

The game allows players to harvest wheat, raise chickens and plant apple trees—a bucolic refuge from the pressures of urban China. But in real life, the tech firm has struggled to find investors.

“In December our company’s funding ran out, we had an investment lined up, but the money never came through,” said chairman Cui Yi.

“This month I arranged another investor, then he backed out too. I think we can’t hold out.” His company is not alone.

Venture capital funding dried up at the end of last year. Total investment in the fourth quarter fell 13% from a year earlier, according to data from Preqin market research.

Policymakers are partly to blame, pushing a war on debt and financial risk that has cut the funding flowing into investment firms, industry insiders say.

Another government diktat halted new video game approvals for months—officially due to youth gaming addiction concerns—sending firms like Beijing Yixin into a deep freeze.

Other companies are facing the fallout from the trade war with the US.

More than a handful of exporters have sought to get around US tariffs by building factories outside China, according to a review of public stock filings.

Others are sending workers home early for Chinese New Year or cutting overtime. Last month China’s exports fell.

“It has hit our profits,” Harry Shih, manager of Runfine Bearings in eastern Zhejiang province, said of the trade war.

Washington slapped 25% taxes on many types of ball bearings in July. Shih said he had shared the cost increase with his customers, roughly half of whom are from the US.

“Business is going down for most companies including factories. Like me they have the same problems, profits are going down” as costs rise, said Shih.

Slowing disposable income growth and tighter credit have hit consumer spending, with car sales falling last year for the first time in more than 20 years.

“Volumes have fallen by half,” said Wang Jingjing, a fast-talking 23-year-old salesman at a Ford dealership in Beijing, noting about one third of the salespeople had been fired or left.

Wang’s own salary has roughly halved, he said, from around 10,000 yuan ($1,474) a month in 2017 down to less than 5,000 yuan ($737).

Official data shows unemployment at a stable rate, rising slightly to 4.9% last month. But independent data paints a different picture.

China’s economy “faces downward pressure, and to some extent this pressure will be transmitted to the job market,” said Meng Wei, a spokeswoman for the National Development and Reform Commission, China’s state planner.

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