IN-DEPTH: China’s Economy Is Faltering
With graduation less than a month away, many college students in China are still scrambling to find a job.
At a free live-stream webinar by a jobseeker training company in mid-June, many of the 800 participants—primarily unemployed 2023 and 2022 graduates—logged eager comments to claim free templates for resumes.
“Many of my trainees told me that they live with their parents, who had been scolding them for not trying hard enough to land a job,” the host told the attendees.
“I can tell them [parents]: finding a job this year is challenging. It’s the market; it’s not you,” the host added. “Forwarding my webinar to your parents will help you alleviate the anxiety.”
Anxiety was undoubtedly the prevailing mood among attendees of the webinar held on a popular Chinese social media app, as shown through emojis and remarks in the comments section. The macro numbers point to a similar picture.
China’s official youth unemployment rates were 20.8 and 20.4 percent in May and April, respectively—about four times the overall unemployment rate of 5.2 percent. It’s also about double the level of young unemployment just before pandemic measures kicked in.
This rate means that one in every five 16 to 24 year olds seeking work in urban areas don’t have a job. And the percentage doesn’t include those not looking for employment: two-thirds of China’s 100 million young urban population.
This growing crisis prompted Chinese authorities in April to announce a series of policy incentives to take effect by the end of 2023, including subsidiaries for expanding hiring by state-owned enterprises (SOE), encouraging financial institutions to increase hiring and business loan issuance, offering more vocational training, and creating no less than a million internship positions.
Still, higher youth unemployment is expected for the next few months, according to a May estimate by Goldman Sachs.
On June 18, the investment bank also cut China’s 2023 gross domestic product (GDP) growth forecast from 6 to 5.4 percent, citing macroeconomic issues—property sector, debt issues, and U.S.-China tensions—that are unlikely to be addressed by China’s stimulus measures.
China’s central bank started cutting interest rates in mid-June, following a deposit rate decrease by major banks. Goldman’s downgrade followed similar assessments by a host of major banks, including UBS, Bank of America, and JPMorgan, that have lowered their GDP growth outlook for the country.
Long Before the Pandemic
Today’s high youth unemployment rate is a symptom of years of ambitious growth on paper supported by a heavily indebted economy, according to Christopher Balding, an expert on the Chinese economy at the Henry Jackson Society, a UK-based think tank.
The problem, he said, preceded the pandemic, and has been 15 years in the making.
“I don’t think the pandemic’s contribution to this is zero. However, I don’t think it’s a majority,” Balding told The Epoch Times. “The pandemic probably made it a little bit worse, but these problems would exist with or without the pandemic.”
In response to the global financial crisis, Chinese authorities released a fiscal stimulus package of 4 trillion yuan ($586 billion at the time), equivalent to 12.5 percent of the 2008 GDP, according to the World Bank. By comparison, the U.S. stimulus package was $939 billion from 2008 to 2010 and about 6 percent of its 2008 GDP. China’s central bank also loosened money policy significantly by cutting the interest rate by over 2 percent to 5.31 percent in December 2008.
Balding said that China went on a path of pushing for artificially high growth rates after 2008, growing infrastructure regardless of demand. At the same time, Chinese authorities, companies, and families have piled on debt.
China’s core debt—credit to the non-financial sector—is nearly three times its GDP, compared to the U.S. ratio at 2.5 and emerging market economics at an average of 2.2, according to the Bank for International Settlements, known as the central bank for central banks.
On June 17, China’s State Administration of Market Regulation issued a new regulation to “restore credit for business entities.”
“It’s basically advising banks to help firms repair their credit, ignore firms’ missed payments, and so on,” said Balding. “The fact that they’re putting out that type of advice to financial institutions, as a regulator, speaks to the depth of the problem related to debt.”
“And if you’re a heavily indebted company, taking on more debt or taking on additional labor is a very big ask,” he added, referring to the Chinese Communist Party’s (CCP) policies to stimulate hiring.
China’s household debt-to-GDP ratio rose steadily from 17.9 percent in December 2008 to 63.3 percent in March 2023, compared to 65.7 percent in the United States. More tellingly, the Chinese household debt as a percentage of disposable income reached 130 percent by the end of 2020, more than that of the United States at 100 percent the same year.
In Balding’s view, China’s supply-driven growth has hit a wall and can theoretically be solved by stimulating demand. However, he considers driving demand unrealistic because the CCP cannot do what’s required—that is, to empower consumers and give individuals the freedom of choice.
“I think there’s a lot of possibilities or a lot of hope for China, but it would absolutely require dismantling policies in China that are not going to be dismantled,” he said, citing restrictions on interprovincial migration and the latest rural management restrictions on the use of arable land.
Antonio Graceffo, a China economic analyst, said the regime has routinely responded to economic trouble by investing in infrastructure. But that approach might not work again this time around.
“All the sensible infrastructure has already been built in China; we’re at a point where all the major ports, the cities, everything is connected. So when they build more infrastructure now, it’s really just making work,” he told The Epoch Times.
“You’re just creating jobs, paying for it out of the public revenues, and it’s not necessarily yielding any sort of significant GDP advantage.”
The country, he said, no longer has the types of infrastructure projects such as the Beijing-Shanghai high-speed rail to fuel GDP growth again. “I think China has seen their biggest growth that they’re ever going to see,” Graceffo, a contributor to the publication, added.
A worker operates a machine for knitting socks in a factory in Funan county in central China’s Anhui province on March 1, 2022. (Chinatopix via AP)Beyond the Official Number
China’s official youth unemployment rate may not capture the full story.
Jobseekers between the age of 16 and 24 include middle and high school graduates from rural areas seeking urban employment and city students with undergraduate degrees.
A professor at a private college in Guangzhou, a mega city in China’s affluent coastal south, believes the actual rate is much higher than the official 20 percent—as high as 80. He spoke to The Epoch Times on the condition that her name, college, and professional field be anonymous to avoid being tracked down by the CCP.
Only two of the 350 graduates in her department this year have found jobs. With graduation on June 28, students must provide employment information to get the diploma.
The official proof for employment is the “three-way agreements,” but schools also accept any form of labor contract. The “three-way agreement” is signed between the student, an employer, and the school to satisfy the requirements of the local government human resources agency.
“Students are not issued a diploma if they do not provide employment paperwork. The rule is understood but not written,” the professor told The Epoch Times, adding that if a student would challenge this rule to the school or the city’s education department, the school would then withhold the diploma citing insufficient internship credit.
As a result, students forge employment in various ways, according to the professor. He cited the example of a friend whose son has not worked for three years after graduation but is “employed” on paper.
In China, public colleges are of a higher academic caliber than private ones and charge less tuition. They are the common campus recruiting sources for SOEs, and they have creative ways to boost their graduates’ employment rate.
The professor, who previously taught at a public college, said that public institutions engage in a practice known as “hitchhikes” to skirt the rules. For example, if an SOE had a quota of two new hires for a college, the college would give the SOE a list of 12 more student names to ink fraudulent three-way agreements. In this way, the university’s “education quality” report looks better, and its unemployment rate is also lower on paper.
Since three-way agreements are not real labor contracts, signing such “hitchhiking” paperwork doesn’t result in actual employment.
Last year, the professor began to hear about employment difficulties from her students, a problem that become more prominent this year. In Guangzhou, most of the students find jobs in foreign or private Chinese enterprises; very few go to SOEs, where students’ family connections are essential for job placement. However, job availability in foreign and private companies has shrunken significantly due to foreign investment leaving China and the authorities’ clampdown on the private sector.
Increased Anxiety
The global youth unemployment rate in 2022 was about 14 percent (pdf), and young people aged 15 to 24 are three times as likely as adults to become unemployed, according to the International Labor Organization, a United Nations agency in Geneva.
In comparison, China’s 20-plus percent is about four times the country’s overall unemployment rate. That is “really a serious problem,” Jean Yeung, a professor of sociology at the National University of Singapore, told The Epoch Times.
She also estimates the youth unemployment rate to be higher than 20 percent because of all the underemployed—people who have to take part-time jobs because they can’t find full-time employment or settle as overqualified workers.
“Overall, there’s definitely an increase of anxiety, disappointment, and doubt about what the future is in store,” Yeung said about the youth sentiment.
She added that the difficulty of getting that first job, seen as a marker of a youth’s transition to adulthood, will likely affect their following transitions to marriage and parenthood.
A Stanford University study in 2019 shows college students graduating during a recession earn less for 10 to 15 years compared to those who graduate during good times. The unlucky college graduates are also less likely to be married and be parents.
Graceffo warned that a high youth unemployment rate might lead to “disenchantment” with the CCP and its leader Xi Jinping.
“In a way, the young people are really the most important people for a political system like the CCP to function. The CCP controls education because they want the children to be indoctrinated with CCP policy and to love the Party,” he said.
“These children don’t have siblings; they don’t have anybody else to rely on except for their parents and the CCP,” he added.
Some youths in China have thus turned to “lying flat,” he said, referring to a countercultural movement wherein young people have abandoned their pursuit of material wealth as a reaction to narrowing opportunities and harsh work conditions.
Supply and Demand Imbalance
Although the youth unemployment rate tends to be higher than the overall population in bad times due to young people’s lack of work experience, Yeung summarized China’s situation as “rising supply meets weakening demand.”
Since 1999, China has embarked on a college expansion policy to facilitate a hoped-for transition from a labor-intensive to a technology and knowledge-based economy. This has led to an exponential increase in college graduates.
About one million college students graduated in 2000. That figure rose tenfold to 10 million in 2022, marking an 18 percent growth from 2021.
The increased supply of graduates has been exacerbated by the weakened worker demand, a problem driven partly by the CCP’s pandemic lockdowns and by non-pandemic-related policies.
Data from May shows weakening manufacturing and services sectors amid sluggish demand.
Meanwhile, the CCP’s clampdown on the private sector has resulted in mass layoffs in technology, property, and private tutoring industries, areas that typically hire many new graduates.
Struggling students have turned to graduate studies instead. For the first time in Beijing, graduates of postgraduate programs are projected to surpass graduates with bachelor’s degrees this year.
According to the Beijing Municipal Education Commission, the number of graduates with an advanced degree was about 110,000 last year, 40,000 fewer than students who graduated with a bachelor’s or associate’s degree. But this year, graduates with an advanced degree will reach 160,000, 1,000 more than those with an undergraduate degree.
The CCP’s attempts to tackle youth unemployment, such as by allowing more students to enroll in graduate programs and a one-time hiring expansion by the SOEs, are only temporary solutions that kick the can down the road, according to Yeung.
In her view, the key is to drive up employee demand, which will require more recruitment from both the private sector and SOEs.
“China needs to try very hard to get people’s confidence and spirit up again,” she said, adding that China needs to get the markets working to meet people’s post-pandemic expectations.
As a group that contributes a significant share of overall consumption—20 percent by Goldman Sachs’ estimate, high youth unemployment rate would further drag down the country’s post-COVID economic recovery, Yeung added.
A ‘Self-Inflicted’ Problem
To Milton Ezrati, chief economist for Vested, a New York-based communications firm, the high youth unemployment rate laid bare Xi’s priorities.
Although Xi has frequently declared his desire for China to move from a low- and mid-skilled economy to a service-oriented one, his actual priority is in the manufacturing and mining sectors, seeing these industries as vehicles to achieve global dominance, said Ezrati, also a contributor to The Epoch Times. An official report estimated nearly 30 million manufacturing jobs will be unfilled by 2025 due to the skill mismatch of college graduates.
The CCP’s youth unemployment problem is “self-inflicted,” Ezrati said. “Had Xi been true to his ambitions to have a service, knowledge economy, maybe this problem would probably exist, but not be nearly as severe.
“At the same time as he talked about a knowledge economy and a service economy, he put great stress on effectively cornering the market in certain crucial industries, such as chip manufacturing and electric vehicles and batteries.”
In his view, the CCP’s way out is to adopt a market-based economy, which the communist regime would never do because authoritative central planning is ingrained as a core ideology. A market-based economy would mean a flourishing private sector, which the CCP has been clamping down on for almost three years.
“I think the greatest threat to the CCP is these independent sources of power that large consumer-oriented firms have,” he said.
