The development of inclusive finance is an important measure vigorously promoted by the Chinese government in recent years. The underlying motivation is to provide more convenient and accessible financial services for its domestic market. Since the development of inclusive finance in China is closely related to the internet and digital technology, it is marked with a sort of internet finance.
Since the second half of 2018, the central government of China has proposed the principle collectively known as the "six stabilities" (stable employment, stable financial sector, stable foreign trade, stable foreign investment, stable domestic investment, and stable expectations) in its analysis and study of Chinese economic situation. Among them, stable employment is listed as the most crucial one, indicating the priority given to the issue of employment in China's policy direction. The effectiveness of proactive employment policy is also directly reflected in the economic data of the third quarter.
Statistics from China's National Bureau of Statistics show that 10.97 million new urban jobs were created in the first nine months of 2019, fulfilling 99.7% of the annual target of 11 million new jobs. In the third quarter, China's registered urban unemployment rate was 3.61%, down 0.21 percentage points year-on-year. China's surveyed urban unemployment rate stood at 5.2% in September, below the expected control target of 5.5%. Among them, the surveyed unemployment rate of the population aged 25-59 was 4.6%, which was significantly lower than the average level of surveyed unemployment rate in urban areas. Despite the recent statistics indicate China's employment situation is still rather stable, from the perspective of future macroeconomic trends, China's employment situation will still face severe challenges.
Firstly, the risk of derailment in China's new normal will hit its employment market. After the release of third-quarter trade figures, researchers at ANBOUND have been observing the risk of derailment in China's new normal economy, which is a rapid decline rather than a gradual slowdown in Chinese economy. ANBOUND's judgment was confirmed after the release of the GDP growth figure in the third quarter. Compared with the 12.1% growth in the first quarter of 2010, the current economic growth rate has halved. A rapid decline in economic growth is bound to have an impact on employment. On the one hand, the rapid decline in economic growth will change investors' expectations and make enterprises consider more of the risk factors when making investment decisions, thereby reducing their scale of investment and operating costs through layoffs and salary cuts, which in turn would reduce employment. On the other hand, in the case of a rapid economic downturn, consumers will also reduce consumption and prepare for an harsher time. As a result, the decrease in consumption will affect the profitability of enterprises, leading enterprises to further reduce expenditures and investments, hence forming a vicious circle. Eventually, enterprises will choose to hire fewer workers, and even some small businesses will go bankrupt, resulting in severe unemployment in the country.
Secondly, the U.S.-China trade frictions have had a direct impact on China's employment market. According to the latest report released by the National Development and Strategic Research Institute of Renmin University of China, although China's overall economy has grown steadily, the downward pressures on the Chinese economy have not been eliminated. More notably, there are many signs of structural differentiation during the macroeconomic downturn, including the increase of unemployment risk in certain regions and industries. In the future, U.S.-China trade frictions could become a major factor that affects China's employment market. A common judgment in China is that U.S.-China economic and trade relations have been temporarily eased, but the relevant contradictions have not been resolved, the U.S. government's new tariff policy on China has only been postponed but not canceled, and the impact of the imposed tariffs on Chinese employment market has yet to be fully manifested. Yu Chunhai, a professor at Renmin University of China's School of Economics, said his calculations based on industry sales margins showed that if the tariffs hit a threshold of 21-24%, the negative impact on employment would quickly show up. If the tariffs on Chinese goods are raised further, industries such as general equipment manufacturing, electrical machinery and equipment manufacturing, rubber and plastics products and metal products industries may see large-scale unemployment. In addition, as many export industries are based in provinces including Guangdong, Zhejiang, Jiangsu, and Shandong, these provinces may certainly face greater unemployment pressures due to the increase of tariffs.
Lastly, the withdrawal of foreign investment will have a significant impact on China's employment market. After 40 years of development, China has become the world's largest manufacturing country and this is inextricably linked to foreign investments. Data shows that by the end of 2018, there were 961,000 foreign-invested enterprises set up in China and China had received US$ 2.1 trillion of foreign investments. With downward pressures on China's economy and rising labor costs, some foreign enterprises have begun to shift their production to other low-cost countries. In addition, the outbreak of U.S.-China trade frictions has greatly changed China's foreign trade and investment environment, which led more foreign enterprises to choose to leave their production out from China to avoid tariffs and sanctions. It should be noted that the withdrawal of foreign enterprises will not only take away a lot of investments, but also cause serious unemployment in the country. According to incomplete statistics, foreign-funded factories contribute about 30 million jobs in China, and the figure could double if related domestic enterprises are included in the study. Although the withdrawal of foreign investments will not happen overnight, the withdrawal of foreign investments is bound to form a great impact on China's employment market.
If the above-mentioned situations happen simultaneously, it will have a huge impact on China's employment market, and mass unemployment will affect not only economic growth but also social stability. Therefore, ANBOUND's researchers believe that there is a need to take effective measures on time.
To reduce the impact of the rapid decline in economic growth on employment, China's monetary policy needs to be loosened further. ANBOUND has long proposed that China needs a massive stimulus to deal with the downward pressures on its economy, and there is a window period for such stimulus, which appears to have passed. However, China still needs to adopt a rate cut policy in the face of an accelerating economic downturn. The interest rate cut will not only achieve rapid results, but will also stabilize market expectations, increase market confidence and bring the economy back to the right track of the new normal.
Facing the impact of rising tariffs on manufacturing jobs, China needs to actively promote trade negotiations with the United States. China and the United States are seeking to reach the "first phase" trade agreement. Concerning the trade talks, China's Ministry of Commerce spokesperson Gao Feng said that the ultimate goal of the two sides' negotiations is to end the trade war and cancel all the additional tariffs. It should be pointed out that the abolition of all tariff increases will also be a process. Before that, China needs to ensure that tariffs will not rise further, so that the impact on China's manufacturing industry will not expand, thereby reducing its impact on employment.
In order to alleviate the impact on employment caused by the withdrawal of foreign investments, China needs to further improve its business environment. In addition to the impact of production costs and trade war, the withdrawal of many foreign enterprises is also a result of the changes in the Chinese market environment. In particular, some foreign chambers of commerce pointed out that China's business environment needs further improvement. To a certain extent, this also reflects the change in foreign confidence in the Chinese market, and this change is likely to have a demonstrative effect, especially for foreign enterprises intending to enter the Chinese market. Therefore, further enhancement of the business environment will be an effective strategy for stabilizing foreign investments.
Final analysis conclusion:
Facing the triple impact of the new normal economic derailment, the U.S.-China trade war and the withdrawal of foreign investments, China's future employment situation will become more precarious. In order to avoid the economic and social impact of large-scale unemployment, China needs to take timely interest rate cuts to bring the economy back to the new normal. In addition, China should also promote the U.S.-China trade talks to improve the business environment, in order to reduce the impact of rising tariffs and the withdrawal of foreign investments on employment.
