IN-DEPTH: China’s Economy Is Faltering

A man works at a construction site for a residential skyscraper in Shanghai on Nov. 29, 2016. (JOHANNES EISELE/AFP via Getty Images)

With graduation looming amid a fiercely competitive job market, many college students in China are scrambling to find a position.

At a free live-stream webinar hosted in mid-June by a training company for job seekers, many of the 800 participants—primarily unemployed 2023 and 2022 graduates—eagerly posted comments to claim free templates for resumes.

“Many of my trainees told me that they live with their parents, who had been scolding them for not trying hard enough to land a job,” the event host told the attendees.

“I can tell them [parents]: Finding a job this year is challenging. It’s the market; it’s not you. Forwarding my webinar to your parents will help you alleviate the anxiety.”

Based on the emojis and remarks in the comments section, anxiety was common among attendees of the webinar, held on a popular Chinese social media app. Statistics point to a similar picture.

China’s official youth unemployment rates were 20.4 percent in April and 20.8 percent in May—about four times the overall unemployment rate of 5.2 percent. Those rates are also about double the level of youth unemployment just before pandemic measures were implemented.

While a rate of about 20 percent means that roughly 1 in 5 of those aged 16 to 24 who are seeking work in urban areas can’t find a job, the rate doesn’t include those who are not participating in the labor market—currently, about two-thirds of China’s 100 million young urban population, according to China’s National Bureau of Statistics.

This growing crisis prompted Chinese authorities in April to announce a series of policy incentives to take effect by the end of 2023. They include providing subsidies to expand hiring by state-owned enterprises (SOE), encouraging financial institutions to increase hiring and the issuing of business loans, offering more vocational training, and creating at least 1 million internship positions.

Still, higher youth unemployment is expected to continue for the next few months, according to a Goldman Sachs forecast.

On June 18, the investment bank also cut China’s 2023 gross domestic product (GDP) growth forecast to 5.4 percent from 6 percent, citing macroeconomic issues—property sector, debt issues, and U.S.–China tensions—that are unlikely to be addressed by China’s stimulus measures.

China’s central bank started cutting interest rates in mid-June following a deposit rate decrease by major banks. Goldman’s downgrade followed similar assessments by a host of major banks, including UBS, Bank of America, and JPMorgan, that have lowered their GDP growth outlook for the country.

Paramilitary policemen patrol in front of the People's Bank of China, the central bank of China, in Beijing on Jul. 8, 2015. (Greg Baker/AFP via Getty Images)

Long Before the Pandemic

Today’s high youth unemployment rate is a symptom of years of ambitious growth on paper supported by a heavily indebted economy, according to Christopher Balding, an expert on the Chinese economy at the Henry Jackson Society, a UK-based think tank.

The problem preceded the pandemic and has been 15 years in the making, Balding told The Epoch Times.

“I don’t think the pandemic’s contribution to this is zero. However, I don’t think it’s a majority. The pandemic probably made it a little bit worse, but these problems would exist with or without the pandemic.”

In response to the global financial crisis, Chinese authorities released a fiscal stimulus package of 4 trillion yuan ($586 billion at the time), equivalent to 12.5 percent of 2008 GDP, according to the World Bank. By comparison, the U.S. stimulus package was $939 billion from 2008 to 2010, equal to about 6 percent of its 2008 GDP.

China’s central bank also loosened money policy significantly by cutting the interest rate by more than 2 percent to 5.31 percent in December 2008.

Balding said that China went on a path of pushing for artificially high growth rates after 2008, growing infrastructure regardless of demand. At the same time, Chinese authorities, companies, and families have piled on debt.

China’s core debt—credit to the nonfinancial sector—is nearly three times its GDP, compared to the U.S. ratio at 2.5 and emerging market economics at an average of 2.2, according to the Bank for International Settlements, known as the central bank for central banks.

On June 17, China’s State Administration of Market Regulation issued a new regulation to “restore credit for business entities.”

“It’s basically advising banks to help firms repair their credit, ignore firms’ missed payments, and so on,” Balding said. “The fact that they’re putting out that type of advice to financial institutions, as a regulator, speaks to the depth of the problem related to debt.”

“And if you’re a heavily indebted company, taking on more debt or taking on additional labor is a very big ask,” he added, referring to the Chinese Communist Party’s (CCP’s) policies to stimulate hiring.

China’s household debt-to-GDP ratio rose steadily to 63.3 percent in March 2023 from 17.9 percent in December 2008, compared with a ratio of 65.7 percent in the United States. More tellingly, Chinese household debt as a percentage of disposable income reached 130 percent by the end of 2020, with the United States at 100 percent the same year.

In Balding’s view, China’s supply-driven growth has hit a wall and can theoretically be solved by stimulating demand. However, he considers driving demand unrealistic because the CCP can’t do what’s required—that is, to empower consumers and give individuals the freedom of choice.

“I think there are a lot of possibilities or a lot of hope for China, but it would absolutely require dismantling policies in China that are not going to be dismantled,” he said, citing restrictions on interprovincial migration and the latest rural management restrictions on the use of arable land.

Antonio Graceffo, a China economic analyst and a contributor to The Epoch Times, said that the regime has routinely responded to economic trouble by investing in infrastructure. But that approach might not work this time.

“All the sensible infrastructure has already been built in China; we’re at a point where all the major ports, the cities, everything is connected. So when they build more infrastructure now, it’s really just making work,” he told The Epoch Times.

“You’re just creating jobs, paying for it out of the public revenues, and it’s not necessarily yielding any sort of significant GDP advantage.”

The country no longer has the types of infrastructure projects such as the Beijing–Shanghai high-speed rail to fuel GDP growth again, Graceffo said.

“I think China has seen their biggest growth that they’re ever going to see,” he said.

A worker operates a machine for knitting socks in a factory in Funan County in central China's Anhui province on March 1, 2022. (Chinatopix via AP)

Beyond the Official Number

China’s official youth unemployment rate may not capture the full story.

Job seekers between the ages of 16 and 24 include middle school and high school graduates from rural areas seeking urban employment and city students with undergraduate degrees.

A professor at a private college in Guangzhou, a mega city in China’s affluent coastal south, believes that the actual rate is much higher than the official 20 percent, and could be as high as 80 percent. She spoke to The Epoch Times on the condition that her name, college, and professional field remain anonymous to avoid her being tracked by the CCP.

She said that only two of the 350 graduates in her department this year had found jobs. With graduation on June 28, students must provide employment information to get the diploma.

The official proof for employment, the “three-way agreement” is signed by the student, an employer, and the school to satisfy the requirements of the local government’s human resources agency, although schools also accept any form of labor contract.

“Students are not issued a diploma if they do not provide employment paperwork. The rule is understood but not written,” the professor told The Epoch Times, adding that if a student should challenge the rule with the school or the city’s education department, the school would then withhold the diploma, citing insufficient internship credit.

As a result, students fake employment in various ways, according to the professor. He cited the example of a friend whose son hasn’t worked for three years after graduation but is “employed” on paper.

In China, public colleges are considered to be of a higher academic caliber than private ones and have lower tuition. As the common campus recruiting sources for SOEs, they have creative ways to boost their graduates’ employment rate.

The professor, who previously taught at a public college, said that public institutions engage in a practice known as “hitchhikes” to skirt the rules. For example, if an SOE had a quota of two new hires for a college, the college would give the SOE a list of 12 additional student names in order to ink fraudulent three-way agreements. In this way, the university’s “education quality” report looks better, and its unemployment rate is also lower on paper.

Since three-way agreements aren’t real labor contracts, signing such “hitchhiking” paperwork doesn’t result in actual employment.

Last year, the professor began to hear about employment difficulties from her students, a problem that has become more prominent this year. In Guangzhou, most of the students find jobs in foreign or private Chinese enterprises; very few go to SOEs, where students’ family connections are essential for job placement. However, job availability in foreign and private companies has shrunk significantly due to foreign investment leaving China and the regime’s clampdown on the private sector.

People attend a job fair in Beijing on Aug. 26, 2022. (Jade Gao/AFP via Getty Images)

Increased Anxiety

The global youth unemployment rate was about 14 percent in 2022 (pdf), according to the United Nations’ International Labor Organization, and young people ages 15 to 24 are three times as likely as adults to be unemployed.

In light of global statistics, the fact that China’s more than 20 percent rate is about four times the country’s overall unemployment rate is “really a serious problem,” Jean Yeung, a professor of sociology at the National University of Singapore, told The Epoch Times.

Yeung also estimates that the youth unemployment rate is higher than 20 percent taking into consideration the underemployed—those who have to take part-time positions because they can’t find full-time employment or who are overqualified workers.

“Overall, there’s definitely an increase in anxiety, disappointment, and doubt [among China’s youths] about what the future has in store.”

Yeung said that the difficulty of getting that first job, seen as a marker of a youth’s transition to adulthood, will likely affect their following transitions to marriage and parenthood.

A Stanford University study in 2019 found that college students who graduate during a recession earn less for 10 years to 15 years as compared with those who graduate during good times. The unlucky college graduates are also less likely to be married and be parents.

A high youth unemployment rate might lead to “disenchantment” with the communist regime in China and its leader, Xi Jinping, Graceffo said.

“In a way, the young people are really the most important people for a political system like the CCP to function. The CCP controls education because they want the children to be indoctrinated with CCP policy and to love the Party.

“These children don’t have siblings; they don’t have anybody else to rely on except for their parents and the CCP.”

Some youths in China have thus turned to “lying flat,” he said, referring to a countercultural movement in which young people have abandoned their pursuit of material wealth as a reaction to narrowing opportunities and harsh work conditions.

People attend a job fair in Beijing on Aug. 26, 2022. (Jade Gao/AFP via Getty Images)

Supply and Demand Imbalance

Although the youth unemployment rate tends to be higher than that of the overall population in bad times because young people lack work experience, Yeung summarized China’s situation as “rising supply meets weakening demand.”

Since 1999, China has embarked on a college expansion policy to facilitate a hoped-for transition from a labor-intensive economy to one that’s based on technology and knowledge. This has led to an exponential increase in college graduates.

About 1 million college students graduated in 2000. That figure rose to 10 million in 2022, marking an 18 percent growth from 2021.

The increased supply of graduates has been exacerbated by the weakened worker demand, a problem that’s driven partly by the CCP’s pandemic lockdowns and by non-pandemic-related policies.

Data from May shows weakening manufacturing and services sectors amid sluggish demand.

Meanwhile, the CCP’s clampdown on the private sector has resulted in mass layoffs in technology, property, and private-tutoring industries, areas that typically hire many new graduates.

Struggling students have turned to graduate studies instead. For the first time in Beijing, graduates of postgraduate programs are projected to surpass graduates with bachelor’s degrees this year.

According to the Beijing Municipal Education Commission, in 2022, the number of graduates with an advanced degree was about 110,000, which was 40,000 fewer than students who graduated with a bachelor’s or associate’s degree. This year, graduates with an advanced degree will reach 160,000, which is 1,000 more than those graduating with an undergraduate degree.

The CCP’s attempts to tackle youth unemployment, which include allowing more students to enroll in graduate programs as well as a one-time hiring expansion by the SOEs, are only temporary solutions that kick the can down the road, according to Yeung.

In her view, the key is to drive up employee demand, which will require more recruitment from both the private sector and SOEs.

“China needs to try very hard to get people’s confidence and spirit up again,” Yeung said, adding that China needs to get the markets working to meet people’s post-pandemic expectations.

Because those ages 16 to 24 contribute a significant share of overall consumption—20 percent by Goldman Sachs’ estimate—a continued high youth unemployment rate would further drag down the country’s post-COVID economic recovery, Yeung added.

A job seeker speaks with a recruiter at a job fair in Beijing on Aug. 26, 2022. (Jade Gao/AFP via Getty Images)

A ‘Self-Inflicted’ Problem

To Milton Ezrati, chief economist for the New York-based communications firm Vested, the high youth unemployment rate laid bare Xi’s priorities.

Although Xi has frequently declared his desire for China to move from a low- and mid-skilled economy to a service-oriented one, his actual priority is in the manufacturing and mining sectors, as he sees these industries as vehicles to achieve global dominance, said Ezrati, a contributor to The Epoch Times. An official report estimated that nearly 30 million manufacturing jobs will be unfilled by 2025 because of the skills mismatch of college graduates.

The CCP’s youth unemployment problem is “self-inflicted,” Ezrati said. “Had Xi been true to his ambitions to have a service, knowledge economy ... this problem would probably exist, but not be nearly as severe.

“At the same time as [Xi] talked about a knowledge economy and a service economy, he put great stress on effectively cornering the market in certain crucial industries, such as chip manufacturing and electric vehicles and batteries.”

In Ezrati’s view, the CCP’s way out is to adopt a market-based economy, which the communist regime would never do because authoritative central planning is ingrained as a core ideology. A market-based economy would mean a flourishing private sector, which the CCP has been clamping down on for almost three years.

“I think the greatest threat to the CCP is these independent sources of power that large consumer-oriented firms have.”