Beijing is facing a myriad of doomsday economic, ideological, institutional, diplomatic, and political crises, of which a financial crisis is the most debilitating. From currency devaluation, high unemployment, and high debt to a vulnerable banking system and sluggish domestic consumption, China’s economy is like a terminally ill patient suffering from severe chronic conditions and an onslaught of acute diseases. Particularly, persistently high unemployment is a debilitating condition that will disrupt social stability because, with 500 million people jobless, the unemployment issue is reaching a crisis level in China.
Economy “extremely abnormal”
Several Chinese economists and scholars recently spoke up to warn Beijing authorities. A professor at the Institute of National Development and Strategy of Renmin University, Liu Xiaoguang, summarized China’s economic problems as the five “20%”. The youth unemployment rate is 20%; industrial enterprises’ profitability declined by 20%; a 20% decrease in local government land concession revenue, a 20% drop in new real estate construction, and a 20% gap in consumer confidence. Liu called the economy “extremely abnormal” and beyond the point of self-repair, requiring “timely intervention by the central government.”
Like a terminally ill patient suffering chronic conditions and acute diseases, China’s economy is difficult to resuscitate. High unemployment and sluggish domestic consumption are chronic conditions that won’t go away while mounting debt and the looming banking crisis can be a life-threatening acute attack.
Unemployment crisis
China doesn’t publish a national unemployment rate. The National Bureau of Statistics publishes the urban unemployment rate with the justification being that everyone in rural China must work to support themselves, either in farming or as migrant workers in urban areas. So theoretically, there is no unemployment in rural China. The urban unemployment rate was 5.2% in the second quarter and fluctuated between 3.9% and 6.2% for years. The unemployment rate of youths aged 16-24 was 20.4%, the highest since 2018 when the statistics became available. Those are the official unemployment rates.
But the Chinese don’t believe in the government’s data. In 2017, a group of Chinese financial journalists developed a methodology and calculated China’s unemployment rate. Using official labor and population data released by the Ministry of Human Resources and Social Security and the Commission of Economic Reform and Development, they found that from 2012 to 2016, urban unemployment was over 60%, and the national unemployment rate was over 20% for all 5 years.
Using the same methodology, I updated their model with the latest data and came up with 2022 national and urban unemployment rates. They are 26% and 56%, respectively.
Assuming the second quarter of 2023 employment situation is not worse than 2022, which is a very optimistic assumption, China’s urban unemployment is 56%, 10 times higher than the official rate of 5.2%. It means that within China’s urban labor force, which is the population between the ages of 25 to 59, excluding students, less than one in two people has a job. A total of 204 million Chinese are jobless, accounting for 31% of the total urban population.
The problem of having over 200 million jobless urbanites isn’t new. According to the 2017 model, high urban unemployment rates between 55% and 62% have persisted for at least 10 years. And the worst is that a significant group of them is urban youth.
A slide from an internal meeting discussing graduate employment at Shanghai Ocean University was leaked in April. The PowerPoint presentation showed that only 15% of the graduates from the class of 2023 found a job, which means the unemployment rate for the graduates in this college is 85%. The slide also shows that in Shanghai, only 1 in 3 college grads have a job. If the college grads in China’s most industrialized and prosperous city have a 67% unemployment rate, what about the poorer regions? Might it be over 80-90%?
China has 12 million college graduates this summer. Applying Shanghai’s unemployment rate, 8 million young people were added to the unemployed. This doesn’t include the 8 million from 2022 and the 7 million from 2021. I think a significant of the 204 million jobless urban population is young people.
Unemployment is spreading to the countryside. Zero unemployment in rural China may be a thing of the past as many migrant workers can’t find jobs and are forced to return home. Here is what a migrant worker had to say about his situation to a journalist.
Old man: Ordinary people can’t make any money to feed themselves. Sometimes I don’t have money to eat. I don’t make enough.
Journalist: Sir, how old are you?
Old man: I’m in my 60’s. I’m a tiler and can’t find a job. There aren’t any small odd jobs. Large construction companies are not hiring, and even if they do, I’m too old. My skills are useless because there are no jobs. I’m willing to do small odd jobs and work for ￥20-30 daily. ￥30 a day is acceptable. But I can’t find any jobs. Even jobs that pay ￥20 a day are hard to find.
Old man: I simply can’t earn back the living expenses. I only made ￥50-60 in more than 10 days. Not enough to buy food. I’m okay as long as the jobs can feed me. Ordinary people like me don’t ask for much. We just want to eat. If we have food, we have no complaints. Talk to these people; most don’t have money to eat. If I make￥10, I save it to buy food for days. It’s not enough, even if I eat only buns. I haven’t found a job in a week. Talk to these people here. Find out if I’m telling you the truth.
China’s 300 million acres of arable land cannot support its 750 million rural population. Hundreds of millions of farmers took up jobs in construction, manufacturing, and service sectors in urban areas. In 2022, China had 300 million migrant workers. As exports, real estate, and domestic consumption are all declining, job opportunities in urban areas are fading. Many of the migrant workers are aging, and even if they return home, they are unlikely to work in farming.
300 million migrant workers are 40% of the rural population. 200 million jobless urbanites account for 31% of the urban population. When 500 million people’s livelihood is threatened, social stability is at risk. This is a life-threatening chronic condition of the Chinese economy.
Catch-22 situation
What is Xi Jinping going to do? He recently brought back his old buddy, Liu He, from retirement to help. Liu was the highest-ranking official in charge of the economy under former Premier Li Keqiang. Xi also replaced the head of China’s central bank. I’m afraid these personnel changes won’t do much.
Bloomberg reported that top CCP officials held half a dozen urgent meetings to solicit ideas from economists and business leaders in an attempt to resuscitate the economy.
Regardless of the effort, Xi is caught in a catch-22 situation. If he continues to keep a tight grip on the market and the business community, China’s economy will be crushed, and this can lead to great social unrest. If he loosens control, the economy may recover, but his political enemies will seize the opportunity to make advances, and internal turmoil can ensue.
For Xi Jinping, it’s a tough choice between saving the economy to save his power and just saving his power. At this point, there is no difference.
Time bomb in geopolitics
For Chinese leader Xi Jinping, the struggling economy is the source of many problems threatening social stability and the regime’s legitimacy. For the outside world, China’s economy may be the most significant geopolitical time bomb. The world is anxious because what happens next in China economically has a detrimental rippling effect.
Why is China’s failing economy a hidden time bomb in geopolitics? First, suppose the world’s second-largest economy collapses. In that case, the rippling effect will cause volatility in the global financial markets, disrupt supply chains, and wreak havoc on countries that depend on China financially. Second, when the economy of the world’s largest communist country deteriorates further, it would bring about social turmoil in China, increasing the risk of war in Taiwan, as the regime would undoubtedly seek an external conflict to shift the blame and use war-time marshal law to stamp out protests.
This is the first of a 3-part series on China’s economy. Please check my further discussions about China’s debt, the banking system crisis, and its sluggish domestic consumption. Please subscribe to get the latest update.
