Over the past four decades since China's reform and opening-up, there seems to be little concern in the country over the issue of unemployment. From the macro point of view, as China has maintained a high economic growth rate for a long time, driven by the three major processes of globalization, industrialization, and urbanization, a large number of low-cost laborers in China have participated in the expanding market. Hence, the issue of unemployment did not become a serious problem in China.
However, the current situation is different from the past. Unemployment will become a prominent economic and social problem in the country, and 2022 is likely to be a year of crucial turning point.
The most direct change is the unprecedented severe employment pressure this year. In 2022, the number of college graduates in China will exceed 10 million for the first time, and to be precise it will be 10.76 million, an increase of 1.67 million year-on-year. In the nearly ten years from 2011 to 2019, the number of graduates only increased by 1.74 million. Regarding the employment of college graduates, Chinese media has reported about the stiff competition in the country's employment. For example, on the public list of urban management positions in a certain district of Beijing, two-thirds of the people have master's and doctoral degrees. In addition, some cities recruit college graduates to work in rural areas as rural revitalization assistants, and Beijing alone plans to recruit 461 people this year.
It is not just college graduates who face employment pressure. Data from China's National Bureau of Statistics show that in March this year, the national urban surveyed unemployment rate was 5.8%; in April, the urban surveyed unemployment rate was 6.1%, an increase of 0.3 percentage points from March. From January to April, the national average urban survey unemployment rate was 5.7%. Among them, the surveyed unemployment rates of the 16-24 and 25-59 age groups were 18.2% and 5.3% respectively. The urban surveyed unemployment rate in 31 major cities in China was 6.7%.
For statistical reasons, the actual unemployment rate must be higher than the official figures mentioned above. After the outbreak of the COVID-19 pandemic, a large number of "flexible employment groups" have increased in China, which are in reality synonymous with hidden unemployment. At the national teleconference on stabilizing the economy held by the State Council on May 25 this year, Premier Li Keqiang admitted frankly that the employment issue is exerting great pressure on the country this year. He mentioned that employment is the top priority as it concerns people's livelihood, which makes it an important pillar of economic stability. He then added that income and wealth can only be generated when there is employment. With the number of college graduates exceeding 10 million for the first time this year, employment contract rate of college graduates is lower than in previous years. To this end, the State Council has decided to use the annual unemployment insurance fund balance of RMB 320 billion to subsidize enterprises to recruit college graduates.
Unemployment is not only a macroeconomic issue, but also a potential social problem. It has also become a delicate matter within the government system, according to researchers at ANBOUND. Media reports reveal that certain large company initially planned to lay off staff in the near future, but was stopped by the relevant supervision department. People familiar with the matter speculate that because many employees of the said company have purchased properties at a nearby high-end real estate, once the layoffs trigger a supply cut-off and the selling off of the properties, it will seriously affect the real estate prices. This, in turn, could impact the local housing prices to a certain extent.
The fundamental reason for the worsening of unemployment in China is that the country's economic growth has encountered obstacles. For many years, China's economic growth rate has been above 8%. Since 2012, the rate has fallen below 8%, and then quickly dropped below 7%. Prior to the outbreak of the COVID-19 pandemic, the rate has already fallen to 6%. If the growth target can be achieved in 2022, the country's economic growth will only be around 5%. Researchers at ANBOUND have previously noted that the country's economic growth has declined too fast in recent years, and it took merely 10 years to reach the "long-term steady slowdown" as suggested by ANBOUND which should have taken 30 years.
In the year 2022, China's economy is facing new unexpected variables. The conflict between Russia and Ukraine and the outbreak of COVID-19 once again affect its growth. In particular, the strict pandemic-related measures that lasted from March to early June have "frozen" a large number of economic and social activities in many parts of the country, with the transportation and logistics systems being in a halt to varying degrees. Although this is the expected outcome of such policy, it does objectively impact the country's economy, which further worsens the already perilous situation.
Figure: China's GDP Scale and Growth from 2001 to 2022
Source: National Bureau of Statistics, plotted by ANBOUND
The rapid decline of economic growth means that both microeconomic entities and consumers have to pay the price. The development of the country's enterprises will be under pressure, where a large number of small and micro enterprises will be closing down, medium-sized enterprises struggling to survive, and large enterprises have to lay off to reduce costs. Even the tech giants and major manufacturers that did not lack money in the past have laid off as much as 20%-30% this year. As the main body of the micro economy, the massive closure and contraction of enterprises is a portent sign for employment.
Certain government departments realized that the employment issue is a major problem when there is a rise in the unemployment rate. In order to reduce the impact of unemployment on society, the government and public opinion turned the pressure on enterprises so that they would cease to lay off employees. However, even if the enterprise does not lay off or reduce the number of employees, the efficiency of production and operation will be compromised. This, in turn, will actually create a large number of "hidden unemployment". In our view, "hidden unemployment" includes both those who are actually unemployed but not included in the unemployment survey, as well as those whose labor productivity is reduced due to the inability to lay off workers. In any case, the existence of hidden unemployment reduces the overall efficiency of the social and economic system and increases the cost of business entities. This is tantamount to demanding businesses to assume too much social responsibility.
During the era of planned economy, China has experienced serious hidden unemployment. When the urban economy and state-owned enterprises could not accommodate the problem of low efficiency and hidden unemployment, extreme solutions were adopted. Educated urban youths were dispatched to the countryside and received re-education from the poor and lower-middle peasants to alleviate the unemployment problem at that time. Now, some cities recruit college graduates to work in rural areas, although there are still many differences from what was implemented in the past, the function of such measures to relieve employment pressure remains the same. Does history repeat itself if policies are used to guide college graduates to support agriculture? Many questions are worth pondering.
Economic growth is the fundamental prerequisite for China to solve all development problems. With the increasing downward pressure on the country's economy, if the economic growth factor is ignored in China's structural adjustment and developmental upgrading, this may lead to the "hard landing" that would result in economic collapse. The new development concept advocated by the Chinese central government is also based on the improvement of economic quality and innovative development, on the basis of continuous growth. Economist Yu Yongding insightfully pointed out that stabilizing employment in isolation from economic growth is to a large extent turning the employment problem into unemployment handouts and reducing labor efficiency. New employment without growth can only produce new hidden unemployment, which is a decline in per capita output and per capita income.
Based on statistical data, there are Chinese researchers estimating that in March 2020, China's hidden unemployed population had reached 76.11 million at one point, and the number of unemployment along with hidden unemployment was as high as 102.2 million. However, the sharp increase in unemployment and hidden unemployment was the result of the impact of the COVID-10 outbreak. Once production resumed, the employment situation soon improved. In April of that year, the number of hidden unemployed dropped to 14.8 million.
What will the situation look like in 2022? Looking at the impact of the COVID-19 related measures in the first half of the year, the size of the hidden unemployed population may be enormous. More importantly, after the first blow to the Chinese economy in 2020, the economic impact in 2022 is the second blow, deeper than that of 2020.
Final analysis conclusion:
The economic downturn, coupled with the impact of the COVID-19 outbreak, have had caused China's unemployment pressure to suddenly increase. In the past few decades, unemployment was not much of a concern for China, yet now the country will need to work hard to ease the issue. The root of the unemployment problem is economic growth. More than a decade ago, the country's economic growth focus was that it should not be set at an excessively fast pace. Now, the problem that China faces is that it should not allow its growth to be too slow. Otherwise, the unemployment problem will become increasingly serious.
