China’s unemployment crisis underscores the broader challenges facing the country’s economic model. The combination of a deteriorating economy at home, falling consumption, overcapacity, excessive domestic competition in the labor market, and inadequate policy intervention now threaten China’s long-term macroeconomic stability. These factors are stoking trade tensions for China abroad.
How bad exactly is unemployment in China? Consider these examples: An increasing number of fresh college graduates are joining the gig economy by taking low-skilled jobs such as delivering food as they struggle to find jobs commensurate with their degrees. The number of people under the age of 25 who applied for manual jobs in the first quarter of 2024 surged 165% compared with the same period in 2019. A memo from an airport in Wenzhou city indicated that the airport had hired architects and engineers as ground managers and bird controllers. Since December 2022, over 10 protests occurred at Carrefour stores across the country due to store closures and unpaid wages. Alibaba, China’s e-commerce giant, cut 20,000 jobs, or 12.8% of the total employment in the 2023 fiscal year, following a 7% cut in the previous year.
China’s official unemployment rate in urban areas has remained flat at around 5% for decades, but it has never reflected the reality on the ground, especially when economic gloom is weighing on Chinese manufacturing and service industries. Since the end of its draconian COVID-19 restrictions, China’s economy has been struggling to rebound amid insufficient demand, excess savings, debt crises, and falling property prices and investments. In the absence of significant fiscal or monetary stimulus, China’s disappointing economic recovery continues to depress employment through its impact on the country’s “three engines” of growth – investment, exports, and consumption. While the persistent pessimism prevailing in the job market is a global phenomenon to some extent, the downward trend of the Chinese economy worsened the situation significantly in a country where the government does not have much experience or make sufficient preparations in coping with the scale of the challenge.
China’s unemployment crisis underscores the broader challenges facing the country’s economic model. Its job market struggles are deeply embedded in a state capitalism system driven by mercantile national strategies that aim at export expansion and trade surpluses. China has been relying on exports to boost its economy amid weak domestic demand, but the country’s foreign trade is facing significant headwinds due to supply chain disruptions, the US-China decoupling process, and high tariffs levied by major trading partners including the United States and European Union.
The slowdown in exports has a direct impact on manufacturing jobs, with lower demand for Chinese goods abroad leading to reductions in workforce and production volumes in export-oriented industries. China’s exports fell for the first time since 2016 as global demand for Chinese-made goods slowed.
The interplay between overcapacity, excessive competition, and policy interventions now threaten the stability of China’s overall economic health. To address these challenges, China must implement comprehensive reforms that balance domestic consumption with production, adopt measures to mitigate the impact of global trade tensions, and provide targeted support to affected industries and workers. Without such reforms, the pressures from prolonged economic stagnation, loss of trade competitiveness, and social discontent cannot stay contained much longer, writes Chen Gang, deputy director of the National University of Singapore’s East Asian Institute.