Why China’s Middle Class Is Losing Its Confidence
The country’s economic miracle created an optimistic middle class. A slowdown has left it shaken.
The country’s economic miracle created an optimistic middle class. A slowdown has left it shaken.
Three years ago, everything seemed to be going right for Blake Xu.
The 33-year-old entrepreneur and his family had built a portfolio of properties during China’s real-estate boom. His wife was expecting their first child. He had just sold an apartment, and put almost half of the proceeds into the stock market.
Since then, the property market has entered a years long downturn, the country’s benchmark CSI 300 stock index has lost around a third of its value and the economy has become increasingly vulnerable, suffering from moribund consumer confidence, weak private-sector investment and sky-high youth unemployment.

Xu has already pulled almost all of his money out of China’s stock market. His next exit may be from China itself. undefined undefined “I don’t know where the future path lies,” said Xu, who lives in Shanghai. “Once our child grows a little older, we intend to send him abroad, and perhaps we will also go.” undefined undefined For most of their lives, China’s new generation of middle-class citizens could take a booming economy for granted. But the property rout, the stock-market slump and the wider economic downturn have forced them to confront a difficult question: Are China’s boom years over for good?
Chinese citizens are spending less, saving more and shying away from risky investments. Household savings in the country reached $19.83 trillion by February, the highest figure on record, according to data from the central bank. Consumer confidence is near its lowest level in decades.
The increasing sense of nervousness among China’s city-dwellers and white-collar workers could be a major problem for Beijing. China’s government has for years derived legitimacy from its reputation for sound economic management. undefined undefined Now, that reputation looks increasingly shaky.
Hugo Chen, 30, was born during the early stages of China’s remarkable economic transformation, which came after former leader Deng Xiaoping rolled back the worst excesses of Maoism and opened the doors to global trade.
Chen, who was raised in the wealthy coastal city of Shenzhen, studied for a master’s degree in the U.K. He moved back to China in 2017 to work in finance and, like many Chinese citizens, decided to play the stock market. He also bought bonds and invested in insurance products.

But last year, he made a decision: no more Chinese shares.
Chen, a banker, had previously helped an insurance company manage its money. He knew more than most about investing—and China no longer seemed like a smart place to invest money.
By the end of 2023, the CSI 300 index had fallen for three years in a row. Even worse, stocks in the U.S., Japan and elsewhere had surged. It was supposed to be China’s century , but the economy and the stock market were losing ground to those in other countries.
“Becoming poor is one thing. Becoming poor while others get rich is another,” said Chen.
He shifted most of his investments into funds that buy U.S. stocks.
China has more than 220 million individual investors, meaning stock-market moves can have a big impact on the national psyche. These small investors once had a reputation as gamblers. After the slump of the past few years, they have scaled back their bets and increasingly shifted to safer assets such as money-market funds.
The real-estate sector has done even more damage to confidence. What started as an attempt by Beijing to rein in excessive debt in the sector around three years ago has morphed into a multiyear crisis, pushing dozens of developers to the brink of collapse and pulling the rug out from under one of China’s main drivers of economic growth.
The price of existing homes in China’s most developed cities fell 6.3% in February compared with the same month last year— the biggest year-over-year decline on record.

Xu, the entrepreneur, sold a second property in a process he described as extremely painful. But he has no regrets: The money will give him the flexibility he needs to leave the country if things get worse, he said.
“Emotionally, I hope for the best for this country,” said Xu. “However, if this team of leaders stays, to be frank, I have to have an exit strategy, as the outlook is worrisome.”
That is precisely the kind of sentiment that will unsettle officials in Beijing. Although China’s government keeps a tight grip on power, it is acutely sensitive to the public mood.
China’s population has a history of public displays of dissent, including public protests against banks and companies . Beijing has tolerated at least a degree of dissent, as long as its citizens follow one overriding principle: Don’t blame the central government.
But some people in the country do blame Beijing for the current economic troubles, pointing to policy U-turns on internet companies, private education and real estate, and a strict approach to containing Covid-19 that has dealt lasting damage to confidence in the country.
The shift toward low investment and high savings is fuelling a vicious cycle, where the economic slump erodes confidence levels and, in turn, low confidence worsens the downturn, said Yasheng Huang, professor of global economics and management with MIT Sloan School of Management and a fellow at the Wilson Center.
“When a society settles on a particular psychology, it’s not easy to shift,” he said.
Scarlett Hu, 37, remembers how it felt to be back in China in 2014. She had just returned from studying abroad, and took a job in Shanghai’s luxury-goods sector.
“At that time everyone in the society was full of hope. There was this promising sentiment around,” said Hu. “When we went out to relax after work, we believed that tomorrow would be better and let’s have fun today.”
Hu bought an apartment in Shanghai in 2017 and started buying mutual funds that invest in the stock market in 2020, before the birth of her son. She hoped the money would help pay for his education. At the time, it seemed like a smart bet: The real-estate market was booming, and stocks were nearing a record high, cheered on by China’s bullish state media.
Her apartment has now lost 15% of its value, and her mutual-fund portfolio is down 35%.
“Now we talk about concrete plans and measures to secure a more certain future, focusing on ways to enhance our sense of security. You don’t feel that kind of ambition any more,” she said.
China’s government has taken steps to tackle the downturn, including easing lending rules for battered real-estate firms, cutting borrowing rates and pledging to resolve the debt problems of local governments. But Beijing appears reluctant to adopt the sort of direct stimulus Western governments embraced in the wake of Covid-19, when direct payments to consumers helped get spending back on track.
In early March, Chinese Premier Li Qiang said the government was targeting growth of around 5% for 2024, and there have been recent signs of improvement.
But economists think Beijing will find it difficult to hit this growth target, and some people in the country worry that things are about to get worse.
A 40-year-old equity analyst based in Beijing said she lost her job last August when the consulting firm she worked for closed. She has two children to care for, her husband’s income is unstable, and she is bracing herself for more pain to come.
“Everyone is saying that this year might still be the best in the next decade, so we should be prepared for a long period of hardship,” she said.
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Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
Technology and semiconductor shares fell sharply as investors questioned the debt financing the AI infrastructure boom and confronted higher rates and Chinese competition.
A sharp technology sell-off has exposed a new anxiety on global markets: whether the enormous borrowing behind the artificial-intelligence infrastructure boom can generate sufficient returns as interest rates rise and Chinese competition intensifies.
The artificial-intelligence investment boom has powered technology shares, semiconductor manufacturers and data-centre operators to extraordinary heights. Last week, investors were given a reminder that much of this expansion is being built with borrowed money.
The technology-heavy Nasdaq Composite fell 4.5 per cent over the week ended October 16, its weakest performance since late June. Semiconductor shares suffered an even deeper correction, with the Philadelphia Semiconductor Index losing about 11.4 per cent.
The selling spread quickly through global markets. Micron Technology fell 14.6 per cent over the week, while South Korea’s Samsung Electronics and SK Hynix dropped approximately 18 per cent and 24 per cent respectively.
This was more than a routine bout of profit-taking. Investors were reassessing three interconnected risks: higher interest rates, the rapidly expanding debt burden attached to AI infrastructure and the prospect of stronger competition from Chinese memory-chip manufacturers.
Artificial intelligence requires a physical infrastructure network of enormous scale. Data centres must be built, advanced processors purchased, power supplies secured and cooling systems installed before customers begin generating meaningful revenue from them.
Technology companies are increasingly supplementing their own cash with corporate bonds, syndicated loans, equipment leases, private credit and project-level financing.
JPMorgan describes the emerging funding model as a combination of conventional corporate borrowing and project finance tied to individual data-centre assets. In Australia, the Reserve Bank estimates that syndicated loans accounted for approximately three-quarters of data-centre financing during 2025 and 2026 to date.
The numbers are becoming large enough to affect broader credit markets. The Federal Reserve Bank of Dallas has cited Wall Street estimates suggesting AI-related investment-grade bond issuance could approach US$300 billion in 2026 alone.
That borrowing is not automatically problematic. Debt can be an efficient way to finance long-lived infrastructure when future revenue is sufficiently predictable. The concern is that AI technology, customer demand and computing economics are changing much faster than the repayment schedules attached to the assets.
A data centre financed today may carry debt for years. Investors must therefore make assumptions about future utilisation rates, electricity prices, chip performance, customer concentration and the amount businesses will ultimately pay for AI computing.
When interest rates rise, those assumptions become less forgiving.
September’s US inflation data intensified the pressure. Consumer prices increased 3.7 per cent over the year, ahead of market expectations and up from 3.4 per cent in August.
The hotter reading reduced confidence that interest rates would fall quickly and pushed bond yields higher. That matters particularly for companies whose valuations depend on profits expected well into the future, as well as highly leveraged infrastructure operators that may need to refinance.
CoreWeave has emerged as a closely watched test case. The specialist cloud-computing company has accumulated substantial debt and lease obligations to build AI capacity, while relying on a concentrated group of large technology customers.
Its shares fell sharply during the sell-off, while the cost of insuring its debt against default climbed. CoreWeave has argued that its contracted backlog more than covers its obligations and that financial markets do not always understand its business model. Nevertheless, its securities have become a proxy for investor confidence in debt-funded AI infrastructure.
Oracle, another major investor in AI computing capacity, fell 8.8 per cent in Friday trading, while CoreWeave dropped 15.5 per cent.
The question is shifting from how much AI infrastructure can be built to how profitably it can be operated.
Interest rates were not the only catalyst. Reports of advances by Chinese memory-chip producer ChangXin Memory Technologies raised concerns that lower-cost Chinese products could increase competition across the global semiconductor industry.
Memory chips are essential to AI systems, but the industry is historically cyclical. Periods of tight supply and high pricing can encourage rapid investment, eventually producing oversupply and falling margins.
The prospect of a well-funded Chinese competitor expanding its technological capabilities unsettled investors in Samsung, SK Hynix and Micron. It also demonstrated that AI-related demand does not insulate chipmakers from conventional competitive pressures.
That combination—slower rate cuts, more expensive financing and potentially cheaper supply—challenged the assumption that every company exposed to AI would enjoy continually expanding margins.
The sell-off does not establish that the AI boom is ending. Demand for computing power remains strong, the largest technology companies continue to generate formidable cash flows and many infrastructure projects are backed by long-term customer contracts.
What has changed is the market’s willingness to overlook the price and financing structure of that growth.
The most resilient companies are likely to be those able to fund investment from operating cash flow, secure long-duration customers and demonstrate that new capacity will earn returns comfortably above its financing costs.
More speculative operators may face greater scrutiny, particularly where debt is expensive, customers are concentrated or expected revenue depends on demand that has not yet materialised.
For Australian investors, the lesson extends beyond US technology shares. Local data-centre operators, infrastructure funds, electricity suppliers and property groups are increasingly exposed to the same investment cycle.
Artificial intelligence may remain one of the defining growth themes of the decade. But last week’s correction showed that enthusiasm for the technology does not eliminate financial discipline.
The next stage of the AI boom will be judged not only by computing power, model performance or demand for chips, but by something more traditional: whether the assets being financed can generate enough cash to repay the money borrowed to build them.
Nasdaq Composite: Down 4.5 per cent for the week ended October 16, 2026
Philadelphia Semiconductor Index: Down approximately 11.4 per cent
Micron Technology: Down approximately 14.6 per cent
Samsung Electronics: Down approximately 18 per cent
SK Hynix: Down approximately 24 per cent
US September inflation: 3.7 per cent annually
Estimated 2026 AI-related investment-grade issuance: Approximately US$300 billion
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