Chinese economy with a most educated generation is suffering to generate enough employment opportunities for its population. A bunch of factors has propelled unemployment among 16- to 24-year-old urbanites to a record 19.3%, more than twice the comparable rate in the US. China is aiming to transform the country into a more innovative and technologically advanced economy but about 15 million young people are estimated to be jobless, and many are lowering their ambitions. More young people taking roles in government may leave fewer jumping into new sectors and would also dampen innovation.
Schooled at the most prestigious universities at home and abroad, top Chinese talent used to aim for Fortune Global 500 companies, large internet platforms, consulting agencies or law firms in cities such as Beijing and Shanghai. But this year, graduates have been intimidated by a torrent of news on social media about mass lay-offs at tech, entertainment, private tutoring and real estate companies as the Chinese economy is battered by stringent coronavirus control measures and regulatory crackdowns. In the meantime, an increasingly disillusioned young population is losing faith in private companies and willing to accept lower pay in the state sector. If the trend continues, growth in the Chinese economy stands to suffer. Regulatory filings show that China’s top five listed education companies reduced their staffing by 135,000 in the last year after the crackdown.
Further, a record number of college and vocational school graduates that translates to about 12 million, would be entering the job market this summer. This highly educated cohort has intensified a mismatch between available roles and jobseekers’ expectations.
Under the Covid outbreak, many private companies were very unstable and laid off workers enmass. In view of this, 39% of graduates listed state-owned companies as their top choice of employer last year, according to recruitment company 51job Inc. But lower income expectations and talent shunning the private sector are likely to lower growth of the Chinese economy in the long term, jeopardizing the Chinese president’s dream plan to double the size of China’s economy from 2020 levels by 2035 to overtake the U.S. in size.
Prospects are so dire that some universities have been urging seniors to delay graduation. State-funded universities are under a lot of political pressure. In May, urban youth unemployment hit a record 18.4%. By July, the peak of graduation season, it could reach 23%, according to estimates by Bank of America Merrill Lynch. According to the National Bureau of Statistics, the unemployment rate in urban areas in 2021 was 5.1%, compared to 14.3% for people aged between16 to 24. In 2021, a record 9.09 million college students graduated in China, with 10.76 million set to graduate in 2022. The high figure implies “continuous challenge from underemployment and pressure on the job market.
To meet its employment goals, economists say China needs GDP to increase between 3% and 5% this year. However, the country is predicted to achieve a growth rate closer to 4%—with the outlook highly uncertain due to the prospect of more lockdowns to contain the spread of the coronavirus. In a fresh setback, Goldman Sachs Group Inc. promptly cut its full year economic growth forecast for China in July to 3.3% from 4%. Citing the reasons, it said that the covid lockdown last quarter took a heavier than expected toll on the economy.
As the unemployment situation has continued to worsen, Beijing has launched a version of the job-support programs seen in Europe during the pandemic, offering tax rebates and direct subsidies to companies who promise to retain workers. But the amounts involved are small. The incentive for hiring a new worker is just Yuan 1,500. Provincial subsidies for graduates who start businesses are also small—just Yuan 10,000 in the prosperous Guangdong region.
Even if China can return to strong growth in the second half of this year, the youth unemployment problem will persist—the rate has been rising since 2017, reaching 12% pre-pandemic. Economists attribute the increase in unemployment to two factors: urbanization and a mismatch between the education system and employers’ needs which have created the unsustainable level of unemployment. The country is also facing the issue of highly educated young people who are rejecting factory jobs and this is leading to huge matching problem in the country.
The economic uncertainty brought on by the coronavirus pandemic has made top Chinese graduates more risk averse in their job aspirations. In the face of uncertainties, the tendency to avoid risks and unfavourable scenarios has supressed the urge to be adventurous and enterprising.