KELLY MCEVERS, HOST:
One of the other big issues facing China right now is its economy. When consumer confidence is down in China, it's bad news for the rest of the world, too. That's because of how much China drives global growth. NPR's Frank Langfitt explains that for its economy to stay on track, leaders in China say consumers will have to spend more and more.
FRANK LANGFITT, BYLINE: Jia Wangxing had his heart set on buying a BMW X5 last year. The SUV lists for $115,000, and it would have sent a message to his friends and clients. I've made it. But he put off the purchase not because Jia, who runs a company that trains salespeople, didn't have the cash but because, like a lot of people these days, he's concerned about where China's economy is headed.
JIA WANGXING: (Through interpreter) Many of my friends are saying, in recent years, they spend a certain amount of money annually, but this year, they became very cautious because China's economic development is not stable now. Many people are a bit worried.
LANGFITT: And those worries don't seem to be going away. According to the Organization for Economic Cooperation and Development, sentiment here has been dropping steadily since last spring.
SHAUN REIN: Consumer confidence is probably the worst that I've ever seen in my two decades in China.
LANGFITT: Shaun Rein runs China Market Research Group. His company surveys thousands of people in 15 Chinese cities.
REIN: The real crisis of confidence started last July after the stock market collapse. Consumers, until then, were still pretty confident about the overall economy.
LANGFITT: The Shanghai Composite plunged 43 percent in less than two months, which sent markets spiraling down in the U.S. and elsewhere. Rein says worries here went deeper than just lost money and frightening headlines.
REIN: It wasn't the price and the volatility that was concerning. It was the government response. It really seemed that the technocrats who everybody believed knew how to run an economy well all of a sudden were confused and lost.
LANGFITT: After all, the Chinese government had created the bull market. State media encouraged investors to pour money into stocks, but once the market turned, officials seemed to have no clue how to halt the slide. Frazier Howie says the government also bungled a currency devaluation that spooked investors around the world. Howie's written a number of books on China's financial system.
FRAZIER HOWIE: We've gone from a long period of certainty to one of uncertainty, and you see a government making policy on the hoof and unable to respond in a sensible way.
LANGFITT: This is new. Chinese people have trusted the communist party to manage the economy effectively, which, for decades, it largely has. With the value of China's currency down more than 5 percent since summer, Howie says more Chinese people are looking to invest elsewhere.
HOWIE: As the economy has weakened and as, ultimately, the China model has rolled over and has run its course, people are now looking at China and saying, I want my money out of China. What that has resulted in is something like a trillion dollars of capital has left China in the past year.
LANGFITT: William Fang would like more of his money to head in that direction. He works in Internet finance at Lujiazui, Shanghai's Wall Street. Fang says many of his friends want to dump assets that are held in the Chinese currency, the renminbi, because they think it will lose even more value as the economy cools.
WILLIAM FANG: (Through interpreter) In the last couple of years, people started to tell me to change renminbi into U.S. dollars and buy assets denominated in U.S. dollars. More and more, people are doing it. If I wasn't under pressure to buy a car and an apartment, I would have probably changed half my assets into U.S. dollars or other currencies.
LANGFITT: For all the worry over China these days, it's worth remembering the economy is still growing, at least officially, at nearly 7 percent a year. And Chinese consumers are still spending. Josh Gartner says consumption in advance of this week's Lunar New Year holiday has been healthy. Gartner's a spokesman for jd.com, one of China's leading e-commerce companies.
JOSH GARTNER: We see pretty strong sales in a number of specific areas like wine for the celebration, but we also see pretty strong sales in products like cell phones, where people want to go home with the newest product.
LANGFITT: And show off to their family members and friends back home. If China's to thrive, its leaders here say it must convert from an old, industrial economy to one driven by consumer spending, but to make that transition, consumers will need to have more confidence in where the country is headed. Frank Langfitt, NPR News, Shanghai.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.