The Chinese economy is in doldrums. One of the manifestations is the alarmingly high
rate of unemployment among the youth.
Senior Lecturer of Victoria University of Wellington Christian Yao has been quoted in a news analysis from Wellington on October 9, 2023, that the rate of youth unemployment in China of 21.3 percent is not only high but alarming, because this can affect other economies as well as geopolitical relations.
The rate has more than doubled the pre-Covid rate of May 2018. Interestingly this had coincided with the National Bureau of Statistics of China announcing it would no longer report age-specific data; under the pretext that it needed to “improve and optimize labour force survey statistics.”
One of the reasons for this growing incidence of youth unemployment is the weakness in the education system in China. Despite the rapid expansion in higher education, there is a mismatch between university curricula and job market needs. Programmes often favour theory over practical skill, leaving graduates ill-equipped for work. Engineering students may focus on equations and theories, but miss out on real world applications such as internships.
Besides, the market faces a glut of overqualified candidates, especially in the technology, finance and healthcare sectors. This imbalance again drives many towards further studies.
In 2023, a total of 4.74 million students in China took the postgraduate entrance examination, a staggering 135 percent increase over the 2.01 million test takers in 2017. This cycle pushes up youth unemployment and underemployment.
Christian Yao warns that the ripple effect of a youth unemployment crisis in China should not be underestimated. Drawing on warnings from UNICEF, high unemployment rates can lead to civic unrests, especially in nations with a large youth population. The Communist Party of China has long maintained its authoritarian approach by securing a social licence based on economic stability and prosperity. If rising youth unemployment erodes that licence, China can experience unrest and a significant shift in power.
In a globally connected world, such turmoil can spill over into international relations. Civic unrests can make a country less stable and less attractive to foreign investment, especially among nations with close economic ties with China. Such unrest can also disrupt supply chains globally.
Data released on October 13, 2023, has revealed that the economy of China continues to be in doldrums, with prices falling due to slack demands from the consumer and the business sectors. Compared with the situation a year, consumer prices remained flat in September, according to figures released by the National Bureau of Statistics; while the wholesale prices fell by 2.5 percent, exports and imports also fell in September as the demand for Chinese products fell in overseas markets.
The recovery of the much touted second largest economy of the world from the shocks of the Covid-19 pandemic has faltered. Earlier in October, the International Monetary Fund cut growth forecasts for China, predicting economic growth at a low of five percent for 2023 and disappointing at 4.2 percent in 2024, down marginally from its conservative forecasts of July.
The IMF has attributed its downward revision to weaker consumer confidence, subdued global demand and a crisis in the property sector that has made a big dent in business activity. In the July to September quarter in 2023, the Chinese economy grew 4.9 percent on a year-on-year basis, slowing down from the growth rate of 6.3 percent in the previous year.
The figures released on October 13 showed that food prices dropped by 3.2 percent in September, while the price of pork, staple diet in China, slid by 22 percent from a year earlier; a steeper decrease than the 17.9 percent drop in August 2023. The recovery in domestic consumer demand had been much weaker than hoped for and excess competition has provoked price wars in some sectors.
The real estate sector in China has been hit hard by the decline in domestic demand, a result of the fall in the purchasing power of the common people. Many builders of real estate have been struggling through a crackdown on heavy borrowings by them. This curb on borrowings has hamstrung the real estate sector, following which the authorities have been forced to ease some of the measures.
The data for September reminds one that the economic recovery of China remains challenged, Robert Carnell of ING Economics has said in a report which has forecast that the consumer inflation in China will be at 0.5 percent for all of 2023 and rise in 2024 at only one percent. More seriously, the producer price index in China has fallen for a full year. The producer price index measures the prices factories charge wholesalers.
In global trade, both the exports and imports of China fell in September 2023, compared to the figures for the same period a year earlier. Imports and exports both slid by 6.2 percent compared to figures obtained a year earlier. Beijing is aiming for a five percent overall rate of growth in 2023, though in 2024 the growth rate is likely to slow to 4.5 percent.
The National Bureau of Statistics of China while releasing these figures cautioned that the external environment of China was becoming more complex and grave and warned that domestic demand remained insufficient.
With the economy struggling, mandarins of the Communist Party of China are now ready to give more leeway to private business in a desperate attempt to revive the economy. Recently, the CPC has warned party cadres against ‘inappropriate interference ’in private business to bolster the economy; backtracking from their hardcore stance against private capital.
Under the leadership of President Xi Jinping, the CPC had, in the last few years, been at the forefront of anti-monopoly campaigns. There have been attempts to rein in multi- billion businesses like Alibaba and corporate leaders like Jack Ma who suddenly
announced his retirement in 2019 and spent the following years mostly abroad. Under the watch of President Xi, the massive anti-campaign carried out against top business houses. This had created panic among the private sector. Several top businessmen had been whisked away.
Following assurances of friendly policies towards the private sector to revive the struggling economy, Ma returned home earlier this year. On October 18, 2023, in an article in the Study Times, an education journal of the CPC Central Party School, widely read by officials at all levels to gauge which way the wind was blowing in Beijing, warned the cadres not to overstep. “Curbing the inappropriate interference of authorities in microeconomic activities has always been a key task in the reform of China’s economic system,” associate professor in economics at the Central Party School Cai Zhibing has said.
Such “interference” means those officials are not taking into consideration the requirements of “high quality development,” as championed by the Central Committee of the CPC, Cai has said; going to the extent of saying some authorities are not “strict and civilized” when it comes to the enforcement of law. He has described the uniform
regulations and measures that have popped up across China to control the private
sector as a “one-size-fits-all” approach that has “greatly” increased economic
uncertainties, burdens and risks of business. The pandemic, changes in trends in global trade and shifts in the focus of domestic development have caused an imbalance in the finances of local governments, Cai has said. This has encouraged regional authorities to turn more aggressive in seizing assets and imposing fines as means to raise revenue. “As a result, such interference has disturbed the order of operation, harmed the business environment and affected confidence in business operations.” Emphasizing on the need for “ensuring fair and full market competition while effectively revitalizing market vitality,” he has called for “reducing inappropriate interference in economic activities” and “mitigating the circumvention of the rules of market economy by the authorities.”