Could Labour Market Trigger Chinese Economy’s Next Problem?

The official jobless rate surged for the third straight month as a result of the economic boom in China. The increase in unemployment is part of a string of encouraging economic data that Beijing has revealed, including the fact that factory investment surged and industrial production increased dramatically in January and February over the same period last year. Economists contend, however, that additional government assistance is required to guarantee a long-lasting recovery.

The evidence of a decrease in China’s average working hours, which is sometimes interpreted as a symptom of underemployment or working far below one’s ability, coincides with the rise in unemployment. The youth unemployment rate, which increased to more than 21% in June, has long been a source of concern. Not long after, China’s Statistics Bureau ceased to release data on unemployment among 16 to 24-year-olds, citing methodological problems it wished to resolve. It started releasing a revised version in January, and as of December, the rate of youth unemployment was slightly under 15%.

These labour-market indicators indicate areas of vulnerability in China’s economy, which is benefiting from state assistance for manufacturing but is nevertheless struggling with slowing consumption and a protracted real estate downturn. Therefore, the most recent unemployment rate is definitely alarming.

By Chinese standards, the country’s economy grew by 5.2% in 2023, but its officials set a 5% growth target for 2024. That’s considered ambitious by many economists. The favourable contrast with 2022, when China battled Covid-19 with lockdowns of major cities, including Shanghai, contributed to the improvement in last year’s performance. Reopening when Beijing lifted its harsh Covid-19 restrictions also helped the economy, but, this boost won’t come again in 2024.

The largest impediment to Chinese growth is still real estate, as new construction projects are ceasing, sales are plunging, and prices are rising. In comparison to the same month last year, new home sales by value fell 32.7% in January and February. This was a significant decline from the 6% decline seen for the entire year 2023.

For concern that such actions may fuel a property-market frenzy, Chinese officials have refrained from implementing large-scale stimulus initiatives in response to the economic issues facing the country. Rather, they are pouring money into manufacturing, as seen by the 0.4% increase in private sector investment in the first two months of 2024 compared to the 10% increase in high-tech manufacturing and services investment.

The increase in unemployment indicates that, despite businesses increasing their capacity with government assistance, they may not feel there is enough demand to warrant hiring more workers.