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Chinese unemployment worries grow as Beijing increases stimulus


In the last several weeks, authorities have made a series of announcements, including tax cuts, monetary policy loosening and plans to support public spending, in order to stop a slowing Chinese economy from hitting its workforce

The push comes at a time when economic data points to lagging domestic growth and the US looks set to keep up the pressure on trade. Amid that environment, worries of widespread job losses won’t help the already gloomy sentiment that’s giving consumers a second thought on spending.

The overarching worry for China’s leaders is that unemployment could lead to social unrest, and deeper questioning of the Communist Party’s claim to having a handle on the best interests of the country. Even now, the economy is widely expected to slow from around 6.5% to just above 6%.

“We think the biggest risk in the near term is rising unemployment around the Lunar New Year,” Haibin Zhu, chief China economist and head of China equity strategy, J.P. Morgan, stated in a Monday report.

China’s biggest holiday, celebrating the Lunar New Year, falls on the first full week of February. Businesses are typically closed for one or two weeks as employees travel home to visit their families. For at least one factory in the export-heavy region of Guangdong, posts on Chinese social media said that the closure began in early December and work isn’t expected to resume until March.

In a country infamous for heavy censorship, it’s not clear whether that early closure is indicative of a broader trend. But surveys point to growing job losses in the industrial sector, especially in the wake of last year’s US tariffs on $250bn worth of Chinese goods.

Gavekal Dragonomics’ China Consumer Analyst Ernan Cui pointed out in a January 9 report that an official survey covering 374,000 large industrial firms shows total employment declined by about 2.8mn people in the 12 months through November.

Separately, UBS estimated total potential job losses in export-related sectors from the trade war could reach 1.5mn.

The firm’s survey in November found that 23% of 125 Chinese respondents in manufacturing have already laid off employees because of the negative effect of US-China trade tensions. Some 34% planned to lay off employees in the next six months, and 18% had cut wages, said the report. The survey of chief financial officers covered a variety of private firms, state-owned enterprises and foreign-related ventures with significant export business or supple to exporters.

The job losses also go beyond  just the manufacturing sector.

“We haven’t seen this degree of jobs weakness since the (stock) market panic of Q1 2016,” Leland Miller, chief executive officer of China Beige Book, stated in an email. The firm publishes a quarterly review of the Chinese economy based on a survey of more than 3,300 Chinese firms.

“In Q4 employment growth weakened across every major sector, with the ‘new economy’ — retail and services — seeing the most substantial deterioration,” Miller stated. “To call it broad-based is an understatement: job growth slowed in every region we track except the Northeast.”

One of the key problem areas is in privately run, as opposed to state-operated companies. The private sector contributed to more than 90% of new jobs in 2017 and accounts for more than 60% of economic growth, according to a state media report last year. But in the fourth quarter, Miller said, hiring by private firms saw the greatest slowdown from the prior quarter that the Beige Book had ever recorded.

In the last two years, private enterprises struggled as Beijing continued to crack down on their primary means of financing, the so-called shadow banking system. The giant state-owned banks prefer to lend only to state-owned enterprises, which are considered safer borrowers than private firms. China lacks a standard system for companies to prove that they can pay back their loans.

After signs the shadow banking crackdown likely went too far, too fast, Chinese authorities have tried to cut lending rates and encouraged banks to lend to small and medium-sized enterprises.

The government is also increasing job training programs in regions where trade tensions are having a greater impact. Meng Wei, spokeswoman for the National Reform and Development Commission stated at a press conference in late October. She noted that US-China trade tensions have caused some uncertainty in the labor market, and that the government has made stability in employment a priority.

It’s unclear when and whether those initiatives will have a material effect.

The latest round of government stimulus compares with similar efforts around the stock market drop and economic slowdown during 2015 and 2016.

“But the situation is arguably worse this time, as the service-sector employers that previously absorbed many laid-off workers are now being squeezed by tighter regulations,” Gavekal’s Cui stated in her report.

 “Government officials are trying to adjust and soften policies to help employment, but the outlook for household income and consumer spending in China in 2019 is clearly worsening.” She added.

The latest official figures stated that unemployment was at a low 4.8% percent in November.

Staffing and recruiting company ManpowerGroup’s first quarter outlook survey showed a net 10% of Chinese employers expect to increase hiring. That’s up from 7% in the fourth quarter of last year, and 8% in the first quarter of 2018. The survey covered 4,223 companies of all sizes.

For the first quarter, companies are getting more clarity on government policy, Jacky Qian, vice president of ManpowerGroup Greater China, stated in an interview with CNBC: “We can put ‘cautiously optimistic’ as the key word for the overall employment outlook.”

Qian noted that companies with more than 250 employees reported an above-trend employment outlook at more than 20%. The southern area of China, particularly Guangzhou, also showed slightly better hiring expectations at a net 11%, up from the prior quarter and year-ago period.

 Manufacturing, and wholesale and retail trade did have the lowest employment outlooks, while finance, insurance and real estate ranked the highest.

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