The World Economic Outlook database, released by the International Monetary Fund on April 14, 2015 has stated that China’s Gross Domestic Product (GDP) growth rate will drop to 6.8 per cent from 7.4 per cent last year. The biggest challenge that China is now faced with however, is not the declining rates of growth but unemployment, which could trigger social unrest. The slowdown in growth rate has raised concerns among officials that there will be a spike in unemployment. Providing employment to everyone of working age in China has been a high priority for Beijing, as employment is regarded as not just a means through which citizens can earn a livelihood, but also as a guarantee of social stability and control. In as far back as 2009, the then Commerce Minister Chen Deming had stated that when economic growth slows, the “chances of possible social unrest increase as well.” The “mass incidents” that China witnesses each year has unemployment as a major reason, and amidst economic downturns, the possibilities of increases in such “incidents” only increase.
In fact, the number of labour incidents in the country has increased. According to data compilation on the issue undertaken by Hong Kong based China Labour Bulletin, increases have been seen in such incidents in the second half of 2014. According to records, there have been 259 such incidents, as reported in the media during this period. In comparison, there were 148 such incidents in the first six months of the year. The numbers have concerned the leadership, and the worrisome fact is that graduate employment in particular could fuel the kind of unrest that had prompted the Tiananmen Square crackdown on protesting students in 1989. Emerging from these concerns is China’s ever increasing domestic security budget, which for the last three years in a row has exceeded the military budget. Premier Li Keqiang in 2014 had vowed no let up in protecting social stability. Maintenance of social stability is an essential to continue the one party rule of the Communist Party in China. However, given the soaring rates of unemployment, concerns are set to increase.
The real jobless rate in China is deemed to be much higher than official figures. In a bid to control unemployment, the State Council, on May 1 this year, announced new measures to boost employment in the country. These include more flexible tax breaks to companies to hire the unemployed, as well as preferential loans and incentives for new graduates and farmers. About 7.5 million graduates are estimated to join the labour market this year, and the new measures unveiled by the State Council mark the first signs of distress in the labour market. Because of the rapid commercialisation of the country’s higher education system over the past few years, a huge oversupply of graduates has been created, whose skills or the lack thereof render them unsuitable in the current job market. Additional woes now are the fact that the hiring capacity of enterprises are reduced, given declining profit margins amidst slowing rates of growth in the country.
In order to understand better the reasons behind the concerns on unemployment arising amidst slowing growth, it becomes pertinent to take a closer look at China’s employment statistics. The following graph reveals how growth in employment has taken place in the country in the last decade.
Graph 1: Total Number of Employed Persons
Unit: 10,000 persons
Source(s): China Statistical Yearbooks (2005-14)
As seen in the graph, a major decline in employment took place in 2008, after the onset of the subprime mortgage crisis which emerged in the U.S. and translated into an economic crisis for China, as its prime export destinations in the U.S. and EU no longer had the capacity to absorb Chinese exports. The drop in employment was 2.13 per cent. About 20 million migrant workers were laid off in the wake of the economic crisis. Growth in employment started picking up momentum again in 2010, but till 2013 has not reached the peak it had in 2007. The average growth of rate in employment in the last ten years has been a miniscule 0.23 per cent. According to data from the International Labour Organization, unemployment as a percentage of total labour force from 2010-14 has been 4.6 per cent, and this rate has seen on a constant upward swing.
Conversely, the number of entrants in the labour market has been increasing rapidly, which increases the pressure for employment generation. The following graph shows the increase in undergraduates and post graduates in the country in the previous decade.
Graph 2: Total Number of Graduates and Undergraduates, 2004-13
Source(s): China Statistical Yearbooks 2005-14
While the growth in the number of post graduates has not witnessed much growth, the growth in the number of undergraduates is on a constant increasing trend. The only decline has been witnessed in 2013, when the total number of undergraduates and college students decreased by 510,126. The average growth rate of undergraduates and college students from 2004-2013 is 4.27 per cent. This is much higher than the average growth rate in employment in the country, which as stated previously is a miniscule 0.23 per cent.
Therefore, as revealed by statistics, the pressure on the labour market is immense, and definitely is not in line with the goals of the creation of a “Harmonious Society”. The crux of this concept lies in the achievement of social stability while recognising the inequalities and problems in the Chinese society. Employment generation is a constant feature of the country’s five year plans. However there is a huge mismatch between the goals of the five year plans and the ground realities. In Northeastern Liaoning province, for example, the government stated in April this year that it has reduced its 2015 job creation target to 400,000 from 700,000 to reflect a “severe” employment trend. Liaoning’s growth rate was merely 1.9 per cent in the first three months this year, which has been the slowest in the 31 provinces of the country.
According to the “Chinese dream” and the plans for urbanisation, there is a need to create new and meaningful urban employment. As such, the government will have to ensure sufficient volume and quality employment. However, given the high costs of living in the urban spheres along with conditions like increasing space restrictions fail to help the situation. Added to this are the problems of slowing growth and reduced profits for enterprises, which in turn lead to higher levels of unemployment in the country. The top leadership of China has consistently stated that the current scenario of the Chinese economy is the “new normal”, in which the economy has shifted gear from the previous high speed to a medium to high speed growth rate. However, what had not been factored in were the additional pressures that will be faced when unemployment shoots up amidst gear shifting from high growth rates to lower growth rates.
Therefore, faced with such issues at hand, the State Council has come up with emergency measures such as encouraging state firms to keep idle workers employed, providing tax breaks to companies that do not fire workers, and enticing businesses into hiring despite slackening economic growth. However, a disconnect is seen when there are growing reports of robots replacing human labour in the industrial sector. On the one hand, the State Council has issued guidelines to ensure unemployment does not shoot up, and on the other, in places like Guangzhou, robots are being put in place to reduce human labour to the minimum. If more such cases of introducing robots were to take place, then the State Council’s efforts at reducing unemployment would be significantly undermined.
In 2008, when massive unemployment was the main characteristic of the labour market, sporadic protests by unemployed workers in export oriented industries increased. Rural areas even erupted in large scale riots. Given the past experience, the State Council has made the smart move of not laying off workers. Nevertheless, how these policies fare when additional entries in the labour market take place is yet to be seen. In all probability, additional measures will have to be implemented and a rethink on sustainable growth will be required. While the state has built up capacity to control unrest or dissent in the form of its ever increasing budget for maintaining domestic stability, yet another question remain as to whether the state can forever use the tool of coercion to control unrest in the face of ever increasing unemployment.
Disclaimer: The views expressed in this article are personal.