China Labour Bulletin is quoted in the following article. Copyright remains with the original publisher.
Malcolm Moore
10 October 2012
In mid-July, the Chinese premier Wen Jiabao addressed a meeting of the country’s 17-man Cabinet and warned that the country was facing a jobs crisis.
“The current and future employment situation in China will become more complex and severe,” he said. “We must make greater efforts.”
Wen’s speech was a surprise – while the growth of the Chinese economy has been steadily slowing down since the end of last year, employment had been a bright spot.
The government reported that over 8 million new jobs were created from January to July, almost 400,000 more than in the same period the year before.
Anecdotal evidence suggested that while the jobs market had slowed in coastal areas, inland China was booming. And 18 out of 24 provinces had announced an average 20% increase in the minimum wage, after a 22% rise the year before.
But in the wake of Wen’s speech, small signals emerged that suggested Chinese employment is at a critical point as the deceleration of the economy picks up speed.
The People’s Daily, the official channel through which the Communist party communicates with its cadres, suggested that migrant workers may be flowing back from China’s factory regions to their home provinces for the first time since the financial crisis.
People’s Daily reporters visited two provinces that are traditionally a source of migrant labour, Henan and Sichuan, to try to track the movement of workers.
In Henan, around 710,000 workers return-ed from jobs in other provinces in the first half of the year, only a small, 6%, fraction of the total migrant population, but more than a 100% rise from last year. But it’s not as bad as 2008, after the financial crisis, when some 3 million Henanese workers returned home as manufacturing orders dried up.
In Sichuan, the ratio of workers remaining inside the province, rather than going out to the coast, has dropped below 50% for the first time.
Since April, when the country’s economic indicators abruptly turned sour, China’s leaders have fretted about jobs across the country.
For over a year, they had concentrated on bringing down inflation and appeared to have done a creditable job: CPI inflation dropped from 6.5% in July 2011 to 1.8% a year later.
Meanwhile, until April, the economy looked on course for a soft landing, with gross domestic product growth easing from an annualized 9.1% in the first quarter of 2011 to 8.1% in the first three months of this year.
“It is relatively easy to achieve rapid economic growth without price stability, or price stability without rapid economic growth, but difficult to achieve both,” said Li Keqiang, the incoming Chinese premier, at a seminar on National Development and Reform Work last December.
For a while, it seemed as if some gentle fine-tuning by the People’s Bank of China had pulled off the balancing act.
But the economic data has got worse with each passing month, and, as China prepares for a once-in-a-decade transition of its top leadership, the Communist party is seriously concerned.
NIGHTMARE SCENARIO
Li Zuojun, an economist at the Development Research Centre of the State Council, gave a speech in mid-September to a private meeting of the Changsha Alumni of Huazhong University of Science and Technology, in which he warned of a nightmare scenario next year, which could leave the country in “crisis”.
“Social conflicts will intensify further,” he reportedly said, with problems in the property sector, a withdrawal of foreign investment, and a “triple witching” as the short, medium and long-term economic cycles all bottom out at the same time.
Judging the true state of China’s labour market is difficult.
“It is the hardest sector to get a comprehensive read on, because it is very hard to get any data,” says Alistair Thornton, an economist at IHS Global in Beijing. “There is lots of anecdotal evidence, but you can swing that both ways.”
The main indicators are two Purchase Manager Index (PMI) surveys and a quarterly ratio of jobs to job seekers that is issued by the human resources ministry.
The official unemployment figures do not include migrant workers, and only include jobseekers who have registered themselves, which very few do.
“What is available does not paint an overly optimistic picture, but it does not look as bad as what we had four years ago,” says Thornton. “You do not have the precipitous drop in job availability, and there are not 20 million to 30 million migrant workers losing their jobs.”
There are some signs, however, that unrest is on the rise.
China Labour Bulletin, a non-governmental organization in Hong Kong that advocates labour rights, says it recorded 37 worker strikes in July, roughly double the number in January, with an increase in protests over unpaid wages.
The triggers for the economic slowdown have been falling demand for Chinese-made goods from the West, the unwinding of stimulus packages created after the financial crisis and tight restrictions on the domestic property market, deflating a bubble that was a major source of income for local governments.
TRANSITIONS IN SIGHT
But Barry Naughton, a professor of Chinese economy at the University of California in San Diego, argues in a paper for the Hoover Institute that China is moving out of its period of very high growth as dividends from moving workers from the countryside to the city come to an end.
“At a certain point, the growth payoff that you can get from moving young people into new occupations quickly starts to fade, and growth rates drop,” he says.
By 2015, China will have reached the income level at which its Asian tiger predecessors, Korea, Taiwan and Japan, began to slow down.
“China’s labour force is already slowing very dramatically, and in just a few years it will begin to shrink,” he says. “Indeed it is likely that the supply of unskilled labour has already begun to shrink.”
From a peak of 28 million births in 1990, the number has stabilized at around 13–15 million. That means that by 2020, retirees will outnumber new jobseekers.
Wages for migrant workers have risen dramatically since 2009, as factories have found it harder to draw employees from China’s inland provinces, again illustrating the demographic shift underway.
Meanwhile, over the past decade, Chinese universities have graduated over 39 million students, according to the education ministry, and graduates account for nearly 9% of the population, a significant rise from the 3.6% in 2000.
However, these graduates are finding the economy is not evolving quickly enough to provide them with sufficient white-collar work.
In Shanghai, one restaurant manager recently lamented that interviews for would-be waiters attracted applicants with economics degrees.
“Over the past year, there has been a shortage of labour supply in many areas. But, in the white-collar sector there is over supply,” says Mao Yushi, a prominent Chinese economist.
A survey of more than 6,000 new graduates conducted last year by Tsinghua University in Beijing showed that entry-level salaries of 69% of college graduates are lower than those of the migrant workers, a figure that government statistics currently put at about 2,200 yuan a month.
“The change in the labour force is not a bad thing,” says Naughton. “However, the speed of these changes will increase the pressure to transform the growth model.”
Mao believes the outlook for next year is decidedly mixed. “The job market will become worse because investment inside China is declining,” he says.
However, he thinks that a fall in employment may not have the politically destabilizing effect on China that has been feared in the past, when leaders said 8% GDP growth was the minimum required to create enough jobs and keep people happy.
“The job market in China is very elastic,” says Mao. “It is very resilient. If migrants are laid off, they go home, they look for work closer to home, often they find it. Or they live off very little for a while. China is not like developed countries. In China, unemployment is not such a big problem. People know how to live off very little in China.”
Ma Guangyuan, a researcher at Peking University’s Venture Capital Research Centre, agrees.
“China is endlessly talking about ‘protecting the eight’ (maintaining 8% GDP growth),” he wrote on his Sina Weibo account, the Chinese version of Twitter. “Why is it that China’s economy must depend solely on a plan that ‘protects the eight’ to maintain social stability? This is incredibly absurd, and clearly illustrates that China is one of the most unstable countries in the world.”
“Even during times when the United States has experienced negative economic growth, there have been no real problems to threaten its social stability. Likewise, in the past 20 years, the Japanese economy has declined continuously, yet its society has remained stable,” he says.
Indeed, the link between employment and political unrest was shown to be tenuous during the financial crisis, when millions of migrant workers returned to their home provinces, but there was little protest.
As a new generation of Chinese leaders takes over, there appears to be recognition that huge investment-centred stimulus plans act as a sticking plaster over the economy while more structural change is needed.
Thornton says: “8% used to hold [as a benchmark to avoid unrest]. But the demographic shift means it is now a lower number, maybe 7%. And it depends on the quality of the growth. If China dropped to 4% or 5% growth but it was all pure consumption growth, that would soak up a lot of jobs. But at the moment the economy is so capital intensive that it does not have such an impact on the jobs market,” he adds.