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Slower China growth spurs job fears

Uwe Hessler
January 17, 2020

Growth in the world's second-largest economy has fallen to its lowest level since 1992, raising the specter of more layoffs in the months ahead. Many are wondering now how many jobs China can lose before unrest erupts.

China Shenzen Fabrik Produktion Arbeiter
Image: Getty Images/K. Frayer

China's rate of economic expansion of just 6.1% in 2019 constitutes the third straight drop in annual GDP and comes after already modest growth, by comparison, of 6.6% in the year before. The slowest growth rate since 1992 was caused by weak domestic demand and trade tensions with the United States, Chinese officials said. Still they expect the growth momentum to remain "generally stable."

"However, we should also be aware that the global economic and trade growth is slowing down," said National Bureau of Statistics Commissioner Ning Jizhe at a news conference in Beijing on Friday, admitting that the Chinese economy was facing "mounting downward pressure" in 2020.

The 6% growth was still within the government's target range of 6% to 6.5% for the year. But the slowdown is far from over, according to Gao Shanwen, chief economist for Shenzhen-based research firm Essence Securities.

Gao expects China's economy to keep growing, but at a rate of just 5% on average in the next decade. In a recent research note, he suggested that the country would have to work very hard to maintain a growth rate above even 4% — at least two percentage points lower than what Beijing is expected to set as a goal for this year.

As far as unemployment is concerned, China's official jobless rate has barely changed over the last several years, hovering between 4% and 5%. But recent government statements suggest that the communist rulers are unusually worried about the slowing economy and its impact on the jobs market.

'Unexpected incidents'

As 2020 marks the conclusion of the government's 13th Five-Year Plan — under which it has promised a "moderately prosperous society" and to end poverty — China's State Council, the country's cabinet, called on local governments in December to "go to all lengths" to prevent massive job losses in 2020.

The Council's chief administrative office even warned that the country could face "massive unexpected incidents" if unemployment balloons — a term widely understood in China to refer to social unrest and public riots.

China saw major labor unrest in the 1990s, when massive state-run shipbuilders and steelmakers began to slash bloated workforces. But the tens of millions of jobs that were lost have since been offset by a hiring boom in manufacturing, construction and white-collar office work that lasted until a few years ago.

In the years ahead though, there's a mounting danger for China to see the reemergence of a "black swan" risk — a phrase used by Chinese President Xi Jinping himself last year to describe an improbable but chaotic event.

Frank Ching, a China political commentator and adjunct associate professor at the Hong Kong University of Science and Technology, believes 2020 will become very difficult, with mass unemployment being the most most-feared problem for the Bejing government. 

"It's not just an economic issue, it could develop into a political one," he wrote in a recent report, and added that rising social tensions and greater unrest over job cuts could be "shaking the legitimacy of the Chinese regime."

Chinese president Xi Jinping is seen on a giant screen during a plenary session of the National People's Congress at the Great Hall of the People in Beijing
Under president Xi Jinping, China's Communist Party wants to change the country's economic model, which was previously based on massive investment and exports and is now aiming for more consumption-led growthImage: Reuters/J. Lee

Quality over quantity

According to government data, the Chinese economy has been strong enough in recent years to create 11 million new jobs annually — enough to keep the jobs market on track. In 2019, the unemployment rate veered between a high of 5.3% and a low of 5%, as the economy added a total of 11.93 million jobs.

But according to data published by IHS Markit at the end of last year, only 4% of Chinese companies plan to hire over the coming 12 months. Company executives told the research group that they expected hiring freezes and pay cuts to become widespread. Already in 2019 companies in a variety of sectors cut workers in China, including courier YTO Express Group, Tencent Holdings, Ford Motor and Oracle.

Some Chinese analysts stress though the jobs market has grown more robust, because it depends less on export-oriented manufacturing than in the past. They mention the United States as an example, where a growth rate of little more than 2% is enough to keep unemployment down to just about 3%.

"When China's economic size was small, the economy had to achieve a high rate of growth to ensure sufficient employment," said Zhang Yuxian of the State Information Center, a think tank working for the government's economic planning agency. Now a bigger economy would be able to absorb the country's labor force supply even at a smaller growth rate, the head of Economic Forecasting said in a statement.

"When China's economic size grows…, a rate of 5% or 4% will be enough. So what's the point of aiming for an overly high grow rate?"

And the China Macroeconomy Forum — a think tank affiliated to the Renmin University of China in Beijing — also said in a recent report that adequate job figures can be created even with slower economic growth, considering that the economy has grown to its current huge size."

One of the report's authors, Ding Shouhai, noted however that the main challenge for the Chinese labor market was its transition "from a quantity-focused past to a quality-focused future."

"It is very unlikely that any massive unemployment would burst out nationwide, while more efforts should be made to avoid the quality of employment from worsening," he wrote.

What may also help soothe communist rulers' nerves is the country's aging population and its shrinking labor force (aged 15 to 64 years), which has constantly declined after peaking at 996 million in 2014, according to the World Bank. Therefore, the jobless rate was becoming "less sensitive to economic growth, and will give the employment situation adequate resilience," Shouhai wrote.

Wave of policy measures

Nevertheless, the government has taken critical actions to shore up growth and employment recently. It has pumped tens of billions of dollars into the banking system, announced plans to build more railways and airports, lowered import tariffs across the board for hundreds of products and promised to open up several industries to foreign investment.

In addition, the People's Bank of China tried to stimulate the economy by reducing the amount of cash banks have to keep in reserve, potentially freeing up roughly $115 billion (€103.6 billion) for long-term lending. Private-sector support has also been announced, including more state funding for small and micro-sized firms, and lower rates for commercial banks to spur lending.

Another important measure to boost employment is a plan to relax the mandatory household registration system which makes it easier for rural residents  to move to most Chinese cities in search of work. This is expected to accelerate urbanization in those cities and could help stabilize China's struggling property market.