Why China’s Middle Class Is Cutting Back On Private Daycare Centers

Economic

Summary:

Amid the job and income insecurity brought by the lackluster post-pandemic economic recovery, cheaper options are pushing costly private centers out of business.

It has been more than a year since China reopened from the Covid pandemic. But as evidenced by the latest wave of closures, the country’s childcare sector is still struggling to regain its footing.

In late December, Li Qing received a text message from her child’s daycare center, Learnroom Children’s House in Beijing’s Changping district, saying that it had suspended classes. The action was taken by the staff themselves after the institution failed to pay social security dues, along with part of their wages.

Soon, another Learnroom branch, located in Beijing’s Daxing district, suspended operation. Learnroom is an international education group that provides care and education for children up to 6 years old.

Hundreds of parents were caught off guard by the suspensions, who still had altogether more than 15 million yuan ($2.1 million) of prepaid service fees to be used, Li told Caixin.

Learnroom is just one of a number of childcare chains in China that have abruptly closed their facilities in recent months, with numerous parents having trouble getting their money back, domestic media reported. Besides Beijing, the closures have also occurred in provincial-level regions such as Guangdong, Jiangsu and Inner Mongolia, the reports said.

The closures highlight the struggles of China’s private childcare centers, caused by growing competition from low-cost rivals, weak consumer spending and government restrictions. They’re also feeling the impact of falling birthrates, which means the centers have to compete for fewer kids, Zhang Hua, executive director of the Chinese Association for Improving Birth Outcome and Child Development’s inclusive childcare working committee, told Caixin.

The once fledgling sector was hit hard by the pandemic, and the situation is not any better now. Childcare centers “closed one after the other during the pandemic,” and the trend has continued into this year, Zhang said. A batch of daycare centers shut down before the Lunar New Year holiday in February, he said, predicting that another batch may close by October.

The closures come as Beijing tries to expand childcare services to reverse the falling birthrates and foster a better-skilled population. The country has set a target of having 4.5 daycare spots per 1,000 people, or 6.3 million spots nationwide, by 2025. As the deadline looms, local authorities are scrambling to close the gap.

Parents cut spending

In the fall of 2023, Sun Yanyun told Caixin she was planning to close her childcare center in Beijing’s Chaoyang district, following the closure or sale of several of her centers elsewhere.

The center in Chaoyang occupies about 480 square meters (5,167 square feet) and pays monthly rent of 40,000 yuan a month. It has 10 non-management staff serving more than 20 children, half the number at peak times. It is operating at a loss.

Like Sun’s, many of the 200 childcare centers registered with the Beijing Municipal Health Commission are struggling to stay afloat, Wang Bing, head of a childcare chain, told Caixin.

One reason is parents’ declining ability to pay the fees after the pandemic. Sun said her Chaoyang daycare center was having a hard time recruiting students because parents think the center’s monthly childcare fee of more than 7,000 yuan is too high.

But the price is actually reasonable. Zhang explained that a commercial daycare provider must charge at least 6,000 yuan per child per month to barely survive.

Similarly, Liu Kelai, who runs a high-end daycare center in Beijing, has found that parents are no longer as eager to shell out money as they were before, and some are even comparing the prices of multiple providers before making a decision.

Liu said many large companies near her center have recently laid off staff or cut salaries. Some affected parents have also taken their children out or moved to cheaper ones.

These parents typically earn between 50,000 yuan and 60,000 yuan a month, but they are saddled with mortgages and car loans that are far higher than their salaries, she said, noting that just a pay cut would make it hard for them to make ends meet, let alone a layoff.

The plight of the daycare centers resembles some of the other industries that are languishing because of the lackluster post-pandemic economic recovery, with many firms being forced to resort to cost-cutting measures such as downsizing. This has raised concerns about job security and continues to weigh on consumer spending, including by middle-class families.

As a result, parents have increasingly opted for cheaper childcare providers. Wang’s daycare experienced a sharp drop in new students and suffered “its largest-ever refund wave” in the latter half of last year. The biggest challenge to the center came from competition from nearby kindergartens offering cheaper childcare services.

Intensifying competition

As of February, there were about 4.8 million childcare spots nationwide, 1.5 million less than the government’s target for 2025, according to National Health Commission (NHC) official Yang Jinrui.

Many parts of China, including Beijing, Shanghai, Guangdong and Zhejiang, have issued documents encouraging qualified kindergartens to also offer daycare services for 2- and 3-year-olds. In China, kindergartens usually provide education and care for children aged 3-6, while daycare centers take care of younger kids.

That’s because as the birth rate continues to fall, at least 10 million spots are expected to remain unfilled in kindergartens over the next few years, according to Su Dezong, an expert from a government-backed organization involved with the care for the next generation. Therefore, authorities can quickly increase the supply of childcare spots by utilizing kindergarten resources, Su said.

Additionally, kindergarten teachers are more likely than others to quickly acquire specialized skills needed to care for children aged up to 3 years old. Kindergartens also have advantages such as more outdoor space.

However, in reality, kindergartens are also facing difficulties such as a shortage of staff to run daycare classes. China overall lacks childcare professionals, while at the same time many kindergarten teachers are unwilling to attend to daycare work, because they feel that their salary wouldn’t match the extra effort, Caixin has learned.

The country’s kindergartens are already suffering due to problems such as the declining birthrate and a lack of government subsidies, with nearly 15,000 closing last year alone, recent government data showed.

The capital is also devising a system in which childcare-only institutions as well as community and workplace childcare sites can supplement the kindergartens in serving babies. The city will add 10,000 new childcare spots this year, after adding 6,000 in 2023, Yu Yingjie, a Beijing education official, said at a news conference last month.

Government restrictions

So, what can the struggling childcare centers do to stay afloat? One option is to become family daycare centers, Liu said, citing their trials. She shared with Caixin a vision that every residential community could have a family daycare center that enrolls 15 to 20 children. “It’s very feasible,” and the centers “don’t have to worry about enrollment.”

However, pilot rules published by national authorities including the NHC in October called for a maximum enrollment of five children per family daycare center and a maximum of three infants or toddlers per caregiver. The rules have drawn opposition from some industry insiders, who complain that daycare centers cannot operate sustainably under such conditions.

Many private childcare centers are trying to turn themselves into cheaper, “inclusive institutions,” thereby receiving government subsidies to reduce costs. However, this path is also challenging as they struggle to pass the necessary step of registering with the local health commission.

For example, as of 2022, only 200 of Beijing’s 627 childcare institutions had completed registration, a rate of just 31.8%, government data showed.

Research by Guangzhou’s legislature also showed that of the city’s 751 childcare centers, only 29.29% had completed registration, the local newspaper Guangzhou Daily reported in June.

Many heads of childcare centers are concerned that policies aimed at steering the industry toward standardization, quality and diversity may in practice have an undesired effect.

A childcare professional told Caixin the institution she works for is tired of dealing with frequent inspections by multiple departments. Another said their daycare center had been asked to submit at least one year’s worth of fire safety records — just signing off the papers took five hours.

“If there hadn’t been a pandemic or rapid changes in the external environment, everyone would have had at least three to five years to grow,” Zhang said. “But now it’s like being strangled right after birth without any space to grow freely.”

The way the government regulates the industry is debatable, considering that the industry is still immature, Wang said. “Regulations alone are not enough to help an industry thrive,” she said.

Cai Jianhua, who works with Zhang on the inclusive childcare working committee, called on governments at all levels to provide more subsidies to ensure that children in both urban and rural areas enjoy equal access to childcare services, and to achieve “high-quality population development.”

China’s childcare sector began to take off in 2019, thanks to a slew of government policies aimed at strengthening infant and toddler care, as well as tighter state controls on the investment in kindergartens. It was hit by the pandemic soon after.

Source：CaiXin

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Owen Li

Economic

With February and March marking the period of employee reviews and appraisals across workplaces in India, AmbitionBox, the company reviews and salary insights platform, recently conducted the Salary Increment Outlook 2024 survey amongst 2500 employees.

According to a report, the average pay increase that employers are expected to roll out in India is expected to be 9.0% in 2024, a slight dip from the 9.2% recorded in 2023. Despite this slightly lower projected increase and concerns about an economic slowdown, the AmbitionBox survey revealed employees remain optimistic about their salary prospects.

The timing of this survey couldn’t be more pertinent to capture their sentiments from a multitude of industries and gather insights on their salary increment expectations and outlook for 2024.

Salary hike expected: Key findings;

A significant 65% of total respondents expressed confidence in expecting favourable appraisals, highlighting prevailing optimism amidst challenging economic conditions.

While 44% of total respondents anticipate smaller pay raises for 2024 compared to the previous year, reflecting cautious sentiments due to economic uncertainties. Interestingly, 22% of all respondents anticipate a salary hike exceeding 30%.

Furthermore, a resounding 54% of the participants emphasised the significance of non-salary perks such as insurance coverage, benefits, bonuses, workplace amenities, and leave policies within their comprehensive compensation structures. This underscores the evolving preferences of modern employees across tiers who are cognizant of the constraints of the current economic landscape on salary increments.

Employees in these roles are increasingly prioritising holistic benefits beyond monetary remuneration, indicative of a broader shift towards stability and long-term career considerations.

Mayur Mundada, founder and business head of AmbitionBox, said, “This time our survey reflects the resilience of Indian employees amidst their fear of economic challenges. While optimism persists, employers need to navigate this period delicately, managing employee expectations effectively while aligning with market realities- formulating policies, and programs fostering a positive work environment and sustaining motivation among employees.”

Methodology:

A diverse pool of about 2500 employees on the platform participated in the survey, with a 77% male representation. 77% of respondents were from the age group of 20-35 with 55% of those being between the ages of 25-34 years. Among the dozens of listed sectors in this survey, the majority of respondents came from the IT Services and Consulting sector at 17%.

Source: News18

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Kevin Du

Economic

Commodity

Stocks

Forex

The threat of supply disruptions from prolonged conflict in the Middle East kept Brent oil futures above $90 a barrel, a level not seen since last October, with prices heading for their second weekly gain.

The dollar firmed against peer currencies after rebounding from a two-week low, while gold's rally to record highs on Thursday came to a halt ahead of the U.S. payroll numbers.

The MSCI All Country stock index was down 0.3% at 770.7 points as it continues to ease in the first week of the quarter after hitting a lifetime high at 785.62 points on March 21.

In Europe, the STOXX index of 600 companies dropped 1.2% to 504.7 points, after Tuesday's lifetime high of 515.77 points.

A cooling U.S. services sector and comments this week from Fed Chair Jerome Powell reinforced the view that rate cuts were likely to commence at some point this year.

However, some other Fed officials have taken a more conservative view, with Minneapolis Fed President Neel Kashkari, in particular, striking a more hawkish stance overnight, saying rate cuts might not be required this year if inflation continues to stall.

"It's the first time I've heard those kind of statements, so the markets sold off, and at the same time we had a flare-up in geopolitical tensions in the Middle East," said Mark Ellis, CEO of Nutshell Asset Management.

So far, however, there appears to be a healthy pullback in markets that had been grinding higher in a very tight trendline, making it look a bit stretched as investors ready for important U.S. payroll numbers, Ellis said.

He pointed to a jump in the VIX (.VIX), opens new tab, Wall Street's 'fear gauge', which posted its highest close since Nov. 1.

"It suggests we are at a bit of a turning point now, whether this is a natural pullback in a bull market, or whether it's going to turn into something a little bit more," Ellis said.

U.S. non-farm payroll numbers for March are due before the opening bell on Wall Street, with economists expecting a rise of 200,000, compared with 275,000 in February, while the unemployment rate is likely to keep steady at 3.9%.

"We think a print below 200,000 should put pressure on the dollar, endorsing the recent signs that the employment story is softening and that the Fed will be in a comfortable position to start cutting in the summer," ING bank analysts said in a note.

U.S. stock index futures , , were trading firmer, recovering some ground after the three key indexes fell more than 1% each on Thursday on hawkish Fed comments and Middle East tension.

MIDDLE EAST TENSION

Markets digested news that Israel braced on Thursday for a possible retaliatory attack after its suspected killing of Iranian generals in Damascus this week, and Prime Minister Benjamin Netanyahu said the country would harm "whoever harms us or plans to harm us".

In a later call with Netanyahu, U.S. President Joe Biden threatened to condition support for Israel's offensive in Gaza on it taking steps to protect aid workers and civilians.

MSCI's broadest index of Asia-Pacific shares outside Japan fell 0.45%, tracking a late tumble on Wall Street as risk aversion dominated the market mood. The index was set to end the week little changed.

A holiday in China also made for thinner trade.

Tokyo's Nikkei fell 2%, pressured in part by a stronger yen, thanks to the prospect of further rate hikes there and more jawboning from Japanese officials.

Hong Kong's Hang Seng Index edged down 0.6%.

Fed officials' comments supported the dollar against a basket of currencies , lifting it away from a two-week low hit after a downbeat U.S. services survey.

The euro was steady, and the yen rose to a two-week high.

Fed fund futures point to just under 75 basis points worth of easing this year, closer in line with the Fed's projections and a significant pullback from nearly 160 bps worth of cuts priced in at the start of the year.

That shift has left U.S. Treasuries struggling, with the 10-year yield hovering near its highest in more than three months, last at 4.321%.

The two-year yield firmed at 4.6520%. Bond yields move inversely to prices.

In commodities, Brent edged up to $90.78 a barrel, after striking a more than five-month high on Thursday.

U.S. crude eased a touch to $86.51 per barrel.

Gold retreated from a record high and was last slightly lower at $2,288 an ounce .

Source: Reuters

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Ukadike Micheal

Economic

Forex

Japan's yen remains highly sensitive to developments in the US economy, with Tokyo's efforts to stabilize the currency facing significant challenges amid uncertainties surrounding the Federal Reserve's interest rate policies. Despite recent gains driven by safe-haven demand and hawkish remarks from the Bank of Japan governor, the yen continues to hover near its weakest level in nearly 34 years. The effectiveness of the BOJ's interventions is questioned as market dynamics remain largely influenced by the Fed's actions, particularly regarding interest rate adjustments.

The upcoming US jobs data presents a crucial test for Japanese authorities, who have been vocal about their readiness to intervene in the currency market. Any indication of the American economy's resilience to high interest rates could further pressure the yen, potentially pushing it towards the critical 152 level against the dollar. This level is considered by some analysts as a significant threshold for Japan, highlighting the importance of swift and decisive actions from policymakers.

Additionally, next week's US inflation readings coincide with Prime Minister Fumio Kishida's meeting with President Joe Biden in Washington. While intervening in the currency market during such a diplomatic event might be awkward, failure to address yen depreciation beyond the 152 level could exacerbate the situation, leading to further weakening of the currency. Kishida's pledge to take appropriate actions against excessive currency movements underscores the government's commitment to maintaining stability in financial markets.

The yen's recent rally, although short-lived, underscores the complex interplay between monetary policies and market expectations. Despite the BOJ's hint at a potential interest rate increase in the second half of 2024, the widening gap in interest rates between the US and Japan remains a significant driver of currency movements. The term "Kanda Ceiling," referring to the 152 level, gains traction in discussions as investors closely monitor Japan's response to currency fluctuations.

While Japan possesses substantial foreign exchange reserves to intervene in the currency market, the effectiveness of such interventions remains uncertain, particularly given the challenges associated with securing resources to buy back yen. The possibility of additional rate hikes to support the currency is weighed against Japan's fragile economic recovery, with many economists anticipating a contraction in the first quarter of 2024.

Japan's efforts to stabilize the yen face formidable obstacles amid shifting global economic dynamics and uncertainties surrounding monetary policies. The yen's vulnerability to external factors underscores the need for proactive measures from Japanese authorities to mitigate risks and maintain market stability. As the currency continues to navigate turbulent waters, the resilience of Japan's economy and the effectiveness of its policy responses will shape its trajectory in the coming months.

Source: Yahoo Finance

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Samantha Luan

Economic

The Philippines continues to feel the effects of the "abnormal" price of rice in global market, thus the higher inflation rate this past month.

Economist-solon Albay 1st district Rep. Joey Salceda gave this explanation Friday, April 5 even as inflation for March raced to 3.7 percent, from 3.4 percent last February.

"As I said last month, once again, it’s all about rice," said Salceda.

"Food inflation accounts for some 57 percent of the total inflation this March. Without the abnormal price of rice in the global market, inflation would have been closer to 3.1 percent, which is well within acceptable range," he noted.

"Corn prices are declining. Fish prices are down. Vegetables are cheaper this year than last year. And even sugar prices are slightly down. Bread prices are mildly up, but that is attributable partly due to the correlated prices of wheat and rice, especially in India where they are substitutes," he said.

"The game plan must be focused on rice," Salceda said, referring to the country’s staple grain.

At any rate, the Bicolano hailed Department of Agriculture (DA) Secretary Francisco Tiu-Laurel's actions this year. He said that the secretary has been more aggressive with distributing rice production support this quarter.

He said Tiu-Laurel has brought machinery distribution, for example, to about 92 percent of target. On top of this, the P12 billion rice farmer financial assistance is also set to be completed this June – again, just in time for planting.

"The DA has also been more active with delivering programs from the Survival and Recovery (SURE) Loan program of the Agricultural Credit Policy Council (ACPC). The Philippine Crop Insurance Corporation has also begun to issue indemnity insurance payments to farmers affected by drought," Salceda said.

"There is significant progress being made in the DA, and his governance clean-up of the NFA will also help make cheap rice available to the poor, as well as provide a better market for rice farmers," he said of Tiu-Laurel.

The solon further said, "Because rice is the greatest driver of overall prices, and rice requires the most irrigation of all major crops, the greatest upside risk to inflation moving forward is El Niño."

El Niño refers to the worsened dry session that some parts of the country are experiencing.

Source: Manila Bulletin

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Ukadike Micheal

Forex

Economic

In March, Asian stocks witnessed robust demand from foreign investors, marking their strongest quarter for foreign inflows in over three years, buoyed by expectations of accommodative monetary policies from major central banks and encouraging Chinese economic data. Data from multiple stock exchanges across the region revealed that foreign investors injected a net total of $8.53 billion into Asian equities last month, contributing to a quarterly total of $18.57 billion – the highest since December 2020.

The Swiss National Bank's unexpected rate cut and the Federal Reserve's commitment to maintaining its outlook for three rate cuts in 2024 further bolstered investor sentiment, fueling appetite for Asian stocks. Meanwhile, China's report of robust factory output and exports during the January-February period signaled a resurgence in regional trade, adding to the positive market sentiment.

India emerged as a standout performer, attracting approximately $4.24 billion in foreign capital, the highest in three months. However, despite this strong showing, Indian equities received only $1.3 billion in cumulative foreign inflows for the first quarter of the year, falling short of the average $3.08 billion recorded in the first quarters of the past three election years. Analysts noted that India's growing weight in the MSCI global index positions it favorably among emerging markets, with expectations of continued investor interest, particularly amid the anticipated victory of Narendra Modi in the upcoming elections.

Foreign investment also flowed into South Korean, Taiwanese, and Indonesian stocks, with inflows amounting to $3.82 billion, $1.61 billion, and $505 million, respectively, in March. The traction towards AI-related companies remained strong, supported by developments in the memory recovery cycle and new opportunities in artificial intelligence, exemplified by Nvidia's latest chip launch, which drove foreign investment, particularly in Korean tech firms.

Conversely, equity markets in Thailand, Vietnam, and the Philippines experienced outflows, totaling $1.15 billion, $452 million, and $46 million, respectively, during the same period. This divergence in market sentiment underscores the varying dynamics within the region's equity markets and the influence of sector-specific factors on foreign investment decisions.

Overall, the surge in foreign inflows into Asian stocks reflects investor confidence in the region's economic prospects, supported by favorable monetary policies and positive economic indicators. However, ongoing geopolitical tensions, trade uncertainties, and domestic factors continue to pose risks to market stability, highlighting the need for vigilance and adaptability among investors. As the global economy navigates through uncertain times, the resilience and attractiveness of Asian markets remain subject to evolving dynamics, shaping the trajectory of foreign investment in the region.

Source: Reuters

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Thomas

Economic

Forex

On Friday, the German economy was in focus again after the better-than-expected German Services PMI numbers. Factory order numbers from Germany garnered investor interest early in the European session.

German Factory Orders

German factory orders increased by 0.2% in February after tumbling by 11.4% in January. Economists expected factory orders to rise by 0.8%.

According to Destatis,

Orders for mechanical engineering surged 10.7%, with the chemical industry (+3.1%) and pharma sector (+6.6%) contributing to the 0.2% monthly gain.

However, automotive industry orders tumbled 8.1%, with orders for manufacturing metal products down 5.3%.

Orders for capital goods declined by 0.6%.

However, orders for intermediate and consumer goods increased by 1.0% and 2.2%, respectively.
Orders from overseas fell by 0.7% in February, while orders from the Eurozone tumbled 13.1%.
Domestic orders increased by 1.5%, with orders from outside the Eurozone rising by 7.8%.

Compared with the same month of the previous year, factory orders were down 10.6%. In January, factory orders fell by 6.2% compared with the same month of the previous year.

German Economic Indicators Sent Mixed Signals

Factory orders changed course in February, albeit modestly, signaling an improving overseas macroeconomic environment. Nonetheless, the German manufacturing sector struggled throughout the first quarter of 2024. The German Manufacturing PMI fell from 42.5 to 41.9 in March 2024.

EUR/USD Reaction to the Economic Indicators from Germany

Before the factory order numbers, the EUR/USD rose to a high of $1.08441 before falling to a low of $1.08233.

In response to the numbers, the EUR/USD rose to a high of $1.08295 before sliding to a low of $1.08230.

On Friday, the EUR/USD was down 0.12% to $1.08241.

German Factory Orders Inch Up 0.2% in February; Auto Industry Orders Dip 8.1%_1

Next Up

On Friday, eurozone retail sales figures will draw investor interest early in the European session. Economists forecast retail sales to decline by 0.4% in February after rising by 0.1% in January. A pullback in retail sales would support ECB sentiment toward demand-driven inflation and a June ECB rate cut.

Later in the session, the US Jobs Report will warrant investor attention. Hotter-than-expected labor market data could sink investor expectations of a June Fed rate cut.

Economists forecast average hourly earnings to increase 4.1% year-on-year in March after rising 4.3% in February. Moreover, economists expect nonfarm payrolls to rise by 200k after a 275k increase in February.