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China's economy slows after hits from Ukraine war, COVID lockdowns and local policies

DEBBIE ELLIOTT, HOST:

In China, reverberations from the war in Ukraine, along with local factors, are creating big challenges for the country's economy. NPR's Emily Feng reports that the uncertainty is causing widespread discontent.

EMILY FENG, BYLINE: Fang Wugen has worked all his life. He had to, to escape the poor farming village in southern Jiangxi province he grew up in. So in 1995, he made his way to Shenzhen, then a manufacturing export hub and later China's Silicon Valley.

FANG WUGEN: (Through interpreter) My family sold a pig for my travel costs.

FENG: And in Shenzhen, Fang has worked in all sorts of electronic factories and assembly lines until now. For the first time in nearly three decades, he cannot find a factory that will hire him.

FANG: (Through interpreter) Workers like me can't find work. Many factories are closed and don't need employees. The market is down. People are marrying less, having fewer kids. Property developers are building less. All that means fewer jobs for us.

FENG: Like dozens of cities across China, Shenzhen had to temporarily lockdown in March. It only had a handful of cases, but under China's zero tolerance COVID policy, that means quarantines and mass testing, especially in smaller, informal factories. Ongoing costs and disruptions from strict COVID controls in China, plus falling demand for property and consumer goods led Premier Li Keqiang in February to set the country's lowest economic growth target in three decades.

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LI KEQIANG: (Through interpreter) We need to make progress but ensure stability in the face of new downward pressures.

FENG: And compounding this economic stress - tense U.S.-China relations and the invasion of Ukraine by Russia, China's political partner. Earlier in March, these concerns sent stock market indices in China plunging by as much as 40% in one day.

ANNE STEVENSON-YANG: Money is seeking safety now, and safety is not China.

FENG: Anne Stevenson-Yang is a director at J Capital Research, a research firm focused on China. She says U.S.-led sanctions on Russia, especially those cutting it off from financial messaging system SWIFT that helps move money around, really scared global investors in China.

STEVENSON-YANG: The idea that you can get kicked out of that system and you can have your reserves frozen - that's got to give them very serious pause. A lot of people collected renminbi in China while the renminbi was appreciating and the economy was doing well. But now they're getting anxious about whether they can get it out.

FENG: What finally cooled this financial drama in the Chinese stock market was an extraordinary meeting on financial stability, chaired by Liu He, a vice premier and economic adviser. At this meeting, Liu reassured investors. Foreign invested enterprises are essential, Liu said at this meeting. He also said it is necessary to create a favorable market environment for entrepreneurs. Here's Alicia Garcia-Herrero, chief Asia Pacific economist at Natixis, a French bank.

ALICIA GARCIA-HERRERO: Liu's speech needs to be read as a demonstration of fear, not as a demonstration of strength.

FENG: As in, policymakers are fearful of backsliding into an economic slowdown. Liu's speech is also being read as pushback against hasty overregulation that might restrain growth even more.

GARCIA-HERRERO: There's two forces - the market-based regulators and the kind of security-based regulators. And I think there's a little bit of a power struggle.

FENG: So far, the security regulators are stronger. There's been a crackdown on property companies and their debt - a big problem for sure, but the crackdown has put huge financial pressure on local governments and developers the economy relies on. There's new financial and data rules that have made it much harder for internet companies to raise foreign capital and attract users. Then a round of education regulations wiped out a lucrative tutoring and cram class sector - a billion-dollar industry in China. All this has led companies to cut jobs, leaving people like Zhang Yi, a software engineer, without work.

ZHANG YI: (Through interpreter) The livestream industry is failing. Blockchain software companies are now not allowed, and financial technology services are also banned from a lot of activities.

FENG: A few years ago, Zhang, a former engineer, retrained to write software to capitalize on the Chinese consumer technology boom. Talent was so scarce, he got poached by startups every year or so. Not anymore. I ask him, how many job resumes have you sent out?

ZHANG: (Through interpreter) I think I've submitted 400 or 500 job applications this year.

FENG: After two months of job searching, Zhang's only gotten a handful of interviews so far. One of them is the day before we talk, but like all the other applications, he never heard back. Emily Feng, NPR News, Beijing.

(SOUNDBITE OF MUSIC) Transcript provided by NPR, Copyright NPR.