The driver asks the passengers to fasten their seatbelts. He drives the car a few metres along the circuit until it is at the start of the straight. He asks: “Ready?” And exclaims: “Go!” He presses the accelerator to the floor, the speed pins the bodies to the seat, the digital display reaches 97 kilometres per hour in three seconds, the car flies until the driver brakes to gently take the north curve. This test drive is the highlight of the visit to the Xiaomi electric vehicle factory. The Chinese mobile company has started to produce the SU7 model, an electric sports car, at this plant located in the south of Beijing. It is its first foray into the sector; it has been executed at a Chinese pace. The company proposed the idea in 2021. They built the factory in 14 months. More than 20,000 units have been delivered since its launch at the end of March. Its intention is to sell 100,000 this year. It is one of the best examples of what Chinese President Xi Jinping has dubbed the “new productive forces,” a slogan with Marxist echoes but projected toward a hyper-technological future. The bet to reactivate the economy.
That northern curve, where the car has slowed down, is also a good vantage point for a finance that is still failing to take off. It is located at one end of the factory, which is “the size of the Forbidden City,” according to public relations employees; the facilities exude the latest technology from every pore, it is an immaculate place where nearly 400 titanic-looking industrial robots carry out millimeter-perfect operations in the assembly area, and another 94 transport robots move around playing music reminiscent of an ice cream cart; only about 100 people work there per shift; the ratio is almost 5 to 1; the machines supported by men will be able to produce a vehicle every 76 seconds when they are at maximum capacity.
From the car, you can see the other side of the Chinese economy. On the other side of the fence, there stands an archetypal shell of the real estate crash. Twenty cream-coloured blocks of housing and offices, of which only three are occupied at the moment. Completed, they are already waiting. On this little piece of land in Yizhuang, an economic and technological development zone south of Beijing, only a newly built road separates the “new productive forces” from the old, unproductive ones.
China’s economy, weighed down by the real estate sector, is still struggling to recover. GDP slowed to an annualised 4.7% in the second quarter, according to data published this week; the increase was 0.7% compared to the first three months, the slowest pace since the pandemic reopened at the beginning of last year. The collapse of the brick and mortar sector, which once represented a quarter of GDP, has left a trail of empty or unfinished houses and a hole in the accounts. New home prices have been negative for 13 consecutive months, according to EFE, and have fallen in June at their fastest pace in nine years, according to Reuters calculations based on official data. Property sales and investment in the sector have plummeted with a fall of 25% and 10.1%, respectively, in the first six months of the year. The collapse, which began in 2021, has caused the fall of developers – giants such as Evergrande. Confidence in the sector, traditionally favoured by Chinese households as a safe haven for their savings, is affecting the entire economy. Consumption remains sluggish; debt is gripping local governments; a myriad of small financial institutions are in trouble and the approved palliative measures do not seem to work. All this sounds like deja vu In Spain, in the Asian giant, it is experienced with the intensity of the first times.
Communist leaders, not given to showing weakness, have shown signs of concern. They have spent this week meeting behind closed doors in a conclave designed to lay down the political and economic guidelines for the next decade. The importance of the so-called third plenary session of the Central Committee, a Party body that brings together the country’s 370 or so top leaders, is paramount. Some analysts equate it with a five-year plan. It has been held months late, an indication that the challenge they face is a difficult one. After four days of confinement, they have done something unusual: they have acknowledged the “risks” facing the economy. “We will apply various measures to prevent and defuse the risks in the real estate sector, the debt of local governments, small and medium-sized financial institutions and other key areas,” says the official statement. The leaders also promise to make efforts to “expand domestic demand,” which is equivalent to acknowledging the ravages of consumption.
Although the third plenum usually focuses on medium- and long-term goals, the Central Committee seems to have been keeping an eye on the latest quarterly data. “The plenum reviewed the current situation and tasks, and stressed that [debemos] “unswervingly achieve the annual economic and social development goals,” the statement added. The comment reflects fears that the latest GDP figures could jeopardise Beijing’s growth target for 2024 of “around 5%”. The constant calls for “social stability” and unwavering Party leadership are another sign of concern.
For Trivium China analysts, all these factors reflect the “anxiety” that has spread through the communist hierarchy. “Leaders are clearly worried about the economy, which continues to struggle,” they write in a recent bulletin. “This means that we could see more aggressive political interventions at the Politburo meeting at the end of the month.” Some economists have suggested the need to boost consumption through injections of public spending in the short term, accompanied by structural change aimed at transferring more of the wealth to citizens through an improvement of the welfare state, something that Beijing has been reluctant to do.
So far, the government has taken steps such as lowering barriers to accessing mortgages or creating a 300 billion yuan (about 38 billion euros) fund for heavily indebted local governments to buy up excess unsold housing. The lifeline does not seem to have worked.
Meanwhile, Xi Jinping wants to steer the country towards technology to get out of the hole. The conclave has indicated that a priority objective must be to achieve a “high-quality development” – a concept that the Chinese government uses to talk about the change from a model of cheap manufacturing to one guided by innovation – and calls for measures to be taken to promote the aforementioned “new productive forces”. The figures for private investment show that there is a transformation underway: although this increased by just 0.1% from January to June, in the leading technological sectors it grew by 10.6%. The change is not current. China has bet on the electric car as a State policy since 2005, for example. The process has accelerated in recent years. This path will not be easy, since the great bet of destining the new products for export may clash with a world in a phase of commercial withdrawal: the European Union and the United States have already announced tariffs on the Chinese electric car; so have others such as Turkey and Brazil. Although for the moment, things seem to be working. China achieved its largest trade surplus ever recorded in June: $99 billion.
Xiaomi has not yet faced this problem: for now, it only sells its cars on the domestic market. Crossing the road from its factory, you enter a world of empty housing estates. Walking between lifeless buildings gives you the feeling of walking through an apocalyptic movie. The doors of the ground floors are locked, their interiors are covered in dust, weeds grow everywhere, the steps are cracked. The sound of a saxophone can be heard in the background. It is Mr. Li, 66, who comes to this area away from the hustle and bustle of the world to practice. He used to live in Beijing, but moved to the new district because he wanted peace and quiet. He says that the economy, for him, is reasonably good. He receives a pension of about 5,000 to 6,000 yuan (632 to 758 euros) and pays about 1,000 yuan (126 euros) for a 40-square-meter apartment that he has rented here for 20 years. He plays a melancholic song titled The silence of the empty mountain.
The development was intended to combine business and residential vectors. “Integrate creative campus” is the official name. Another of the tenants is Tang Jun, a 20-year-old film and television student with shoulder-length hair, an earring and a T-shirt that says “optimistic.” A relative bought one of these apartments and, as it was empty, he moved in during the summer. He works as a clerk in a small grocery store on the ground floor. He earns 4,000 yuan (505 euros) a month. When he finishes, he spends time playing video games. His father, he says, worked in a gold mine in his native province of Hunan. He says he is happy, but worried about the future. When asked if he thinks his generation is doing better or worse than his parents, he replies that he will not have to worry about shelter and food. “But I am not sure what I will do when I graduate. Maybe I will stay in Beijing looking for an opportunity. If it doesn’t work out, I can always go back to Hunan.”
In the sales office of the development, the model shows the shopping centre that was planned to bring life to the area. Work has stopped. In the empty office, a cleaning lady is mopping while a shop assistant explains that three of the buildings, which can house around 1,000 people each, are almost complete. The rest, he adds, will be filled as the previous ones are sold. There are 20 blocks in total. He does not know if prices have been falling. But he does say that there is an agreement with Xiaomi to fill several towers with its employees: the new productive forces to the rescue of the old. It remains to be seen to what extent one industry will be able to save the other. That is Beijing’s bet. For the moment, the buildings in question are fenced off, and the rusty fence is flanked by two blue pillars on which one can read: “Trust comes from quality; responsibility creates value.”
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