Business Maverick

Business Maverick

China’s record-high youth unemployment rate likely to worsen

China’s record-high youth unemployment rate likely to worsen
A police officer walks past a cat mural during the Bund Art Festival, in Shanghai, China, 16 May 2023. (Photo: EPA-EFE/ALEX PLAVEVSKI)

The country’s record high youth unemployment rate may climb further in the months to come, a warning sign that will pressure policymakers to take action.

The jobless rate for 16-to-24 year olds in China hit 20.4% last month, nearly four times the national rate, data from the National Bureau of Statistics showed on Tuesday. Pressures will probably only grow this summer, when an estimated 11.58 million graduates are expected to flood the market. 

The surge in joblessness underscores how much the economy is struggling to absorb new workers, even as growth rebounds from its pandemic slump and the overall labor force declines

“The pressure from fresh college graduates will mount around July,” said Bruce Pang, chief economist for Greater China at Jones Lang LaSalle Inc. Joblessness among the less educated was probably the main driver of unemployment among young people, he said. 

Rising unemployment adds to the frustration and angst young people feel over their careers and socioeconomic status. Last summer, rare protests about Covid controls erupted at some universities, while many have also become disillusioned about their lack of opportunities after mass layoffs in once-popular industries like technology and edutech.

The country’s leaders appear keenly aware of the risks of rising joblessness. Last month, China’s Minister of Human Resources and Social Security Wang Xiaoping described stabilising employment as a “major political responsibility”, the official Xinhua News Agency quoted her as saying. 

Further government calls for addressing the problem came on Tuesday, alongside other signs of a faltering recovery in the world’s second-largest economy. The NBS emphasised the need to create more jobs as it also revealed data showing industrial output, retail sales and fixed investment all growing at a much weaker pace than expected. 

“More efforts need to be made to stabilise and expand employment for young people,” NBS spokesperson Fu Linghui said at a briefing in Beijing. 

Authorities have taken some steps in recent weeks to try and stop youth unemployment from spiralling out of control. The government has asked state-owned enterprises to hire at least as many graduates this year as they did last year. The State Council, China’s cabinet, also last month published a detailed plan laying out measures to expand recruitment and provide subsidies to employers to incentivize them to make more hires. 

Those moves suggest the government is focusing on “structural and direct administrative solutions” rather than “leaning on broad-based stimulus to try to absorb jobs,” Michael Hirson, the head of China research at 22V Research, wrote in a research note.

The youth jobless rate “is as much a structural problem as a cyclical one,” he said.

‘Skills mismatch’

Many companies are remaining cautious about increasing capital expenditure or hiring more people, according to Louis Kuijs, chief economist for Asia Pacific at S&P Global Ratings. He pointed to “pressures on margins and lingering uncertainty about the strength and durability of the recovery” as key factors. 

The rising youth jobless rate is also probably because of a “skills mismatch” in the labour market, according to Duncan Wrigley, chief China economist at Pantheon Macroeconomics. Since China’s reopening appears to have benefited low-end services sector companies more than others, there aren’t as many jobs for more educated applicants, he said. 

A “sustained economic recovery is the best medicine for private sector sentiment,” Wrigley said. “The government could do more in terms of pushing forward market-based reforms to inject new vitality into the economy, which would allow the private sector to create more high-quality jobs in the longer term.” 

Some economists aren’t as worried about the job market outlook. 

China’s economic expansion should still be “strong enough” to bring down the overall jobless rate, which would feed through to lower youth unemployment, said Christopher Beddor, deputy China research director at Gavekal Dragonomics.

He warned that the process would be “painfully slow,” though.

Beddor also pointed out that in general, youth employment tends to be concentrated in services — so the fact that the recovery has depended on strong services consumption should “eventually” help lower overall joblessness for that group. BM/DM

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