Just How Bad is Unemployment in China?

May 15, 2020

The lockdown measures adopted to curb the spread of the novel coronavirus in Europe and the United States have hit economies hard, leading to soaring unemployment rates. Yet in China, where most indicators have reflected a steep economic downturn, the unemployment rate mysteriously showed nearly no increase over the first quarter of 2020.

In the following article, Li Xunlei, Deputy Chairman of the China Chief Economist Forum and Chief Economist at Zhongtai Securities Research Institute, explains why the official unemployment rate has barely budged in the face of broader economic problems. He does his own calculations to estimate a real unemployment rate around twenty percent, and adds some conjectures as to how these much higher unemployment figures will affect the broader economy.

Below we’re also featuring our first contest winner with a satirical take on a recent off-the-cuff Xi speech. And as always, stick around till the bottom for ‘China Twitter Tweets of The Week.’

How High Is China’s Unemployment Rate?

April 26. Li Xunlei.

Summary

The official unemployment rate clearly does not reflect the economic situation in China. Unlike in the United States and Europe, neither official measure of unemployment in China correlates with the business cycle. While most economic indicators indicated a sharp decline in economic activity, the urban surveyed unemployment rate in China increased by 0.7% in the first quarter of 2020.
China has two methods, each flawed in their own way, of measuring unemployment. The urban registered unemployment rate only counts those who register as unemployed with the government and does not account for migrant workers at all. In the first quarter of 2020, the number of migrant workers fell by more than fifty million, a group that goes unaccounted for under these unemployment measures. The urban surveyed unemployment rate also undercounts the number of unemployed migrant workers.
How high is the unemployment rate? Taking into account sluggish consumer demand and the lagging services industry, the number of newly unemployed people in China may exceed seventy million, corresponding to a 20.5% unemployment rate.
Knock on effects: there is no inevitable, V-shaped recovery once the lockdown ends. Shutting down the economy is easier than re-opening it, and problems like reduced income, bankruptcy, and upticks in unemployment will have magnifying effects. That is not to mention the fact that we have yet to cure the coronavirus.

The official unemployment rate is deviating from other economic indicators

In theory, the unemployment rate and the business cycle should be closely, and negatively, correlated. When business is booming, production expands and unemployment decreases. When the business cycle swings downward, production slows and the unemployment rate rises. Because of the relative inelasticity of the labor market, decreases in the unemployment rate often lag behind upswings in the business cycle, meaning that broader economic recovery might not bring immediate job market gains.

[This figure shows the close correlation between GDP growth and unemployment in the United States. The red line indicates unemployment rate, measured on the left y-axis. The gray line indicates GDP growth, measured on the right y-axis in inverse order with negative growth highest on the axis.]

There are two methods used for calculating unemployment in China. The urban registered unemployment rate relies on employees at non-private and private enterprises, as well as self-employed people, to report unemployment to the government. The urban surveyed unemployment rate is calculated using the results of sample surveys in urban areas, and was designed in part to account for migrant workers in cities.

Neither measure of unemployment is highly correlated with the business cycle. For the past twenty years, China’s urban registered unemployment rate has modulated without correlation with broader economic conditions. The urban surveyed unemployment rate, since it began being measured in 2018, has generally had limited volatility, staying persistently around five percent.

[These two figures show the lack of correlation between the unemployment rate and economic activity in China. In the graph on the left, the red line indicates the urban registered unemployment rate, measured on the left y-axis. The gray line indicates the year-on-year change in electricity generation, measured on the right y-axis in inverse order with negative change highest on the axis. In the graph on the right, the red line indicates the urban surveyed unemployed rate, measured on the left y-axis. The gray line indicates year-on-year change in electricity generation, measured on the right y-axis in inverse order with negative change highest on the axis. This graph begins in January 2018, when the Chinese government introduced the urban surveyed unemployed rate.]

The same held true in the first quarter of 2020. Even as GDP growth fell by more than 13 percent, retail growth fell by 27 percent, fixed asset investment fell by 22 percent, and exports fell by 15 percent, China’s urban surveyed unemployment increased a mere 0.7% to 5.9% total.

Both measures of unemployment need to be improved

Neither measure of unemployment reflects the real situation in the job market. The urban registered unemployment rate, for its part, only counts people who have self-registered with the government as unemployed, and who meet the conditions to be counted. Few people actually take the urban registered unemployment rate at face value.

The Chinese survey unemployment rate is an improvement over the urban registered unemployment rate. Internationally, unemployment statistics usually rely on household survey data, counting anyone who wants to work but is unable to find employment as unemployed. China’s methods for tabulating surveyed unemployment rate are generally up to international standards.

However, China’s survey unemployment rate does not fully account for migrant workers. When there is work to be had in the city, a migrant counts as a “worker,” but after losing their job in the city, a migrant worker can return to the countryside to be a farmer. No matter the economic situation, the migrant worker technically has a job, either as a worker in the city or as a farmer in their hometown. As a result, there is no unemployment problem among migrant workers according to the surveyed unemployment statistics.

In reality, many migrants may want to remain in the city even when the economic outlook is bad. Only a lack of work ultimately forces them to return to the countryside to farm. In reality, these people also belong to the ranks of the unemployed. The land is the migrant worker’s unemployment “insurance,” and the money they obtain working as a farmer is their insurance payout. The current surveys for urban and rural households count those farmers as employed, which is entirely unreasonable.

** The article here includes a number of graphs indicating that after the number of migrant workers increased every year from 2000 until 2019, the first quarter of 2020 saw a drop in urban migrant worker populations back to pre-2005 levels. **

According to the latest data from the National Bureau of Statistics, there were only 120 million migrant workers in China in the first quarter of 2020, a drop of fifty million migrant workers from the same period last year. Though many of them were unable to find jobs in cities and were forced to go to their villages, none of those fifty million people will be counted as unemployed.

The real unemployment rate might be around 20%

According to the National Bureau of Statistics, there were a total of 780 million employed persons across all industries at the end of 2018, 570 million of whom worked in secondary or tertiary industries. 150 million of those people were self-employed, more than half working in industries like hospitality and food services.

The economic shutdown has had an outsized impact on such people, as revenue in the foodservice industry fell by 43% in the first quarter, for example. It is estimated that thirty percent of self-employed people are currently still unable to operate their business, resulting in an additional forty-five million unemployed people.

There is no easy recovery

**The article details numbers indicating a steep decline in consumer demand and industrial profits**

A fall in incomes and an increase in unemployment will accelerate the general downward trend in the Chinese real estate market that predate the coronavirus outbreak. At present, real estate transactions in the country’s thirty largest cities have only recovered to about 80% of their level in previous years.

In March, the average house price fell by 5.9% on a month-by-month basis in Shanghai. This rate places Shanghai behind only Fuzhou (7.2%) and Dandong (8.6%). Nearly half of all second-tier cities saw a drop in real estate value. Since 67% of household wealth in China is tied up in real estate, this adjustment in housing prices is sure to affect consumption.

Therefore, we must be patient with the economic recovery. It is relatively simple to “suspend” all economic activities, but a far more extended process to resume business as usual. Many problems, such as reduced income, bankruptcy, and unemployment during periods of economic downturn have magnifying effects on each other…What’s more, there remains great uncertainty about when medicine will be able to defeat the coronavirus.

This article was translated by Coby Goldberg. Coby is a recent Princeton graduate interested in connecting with any scholars or journalists who need a research assistant for projects related to China. For a portfolio of his work, including a fascinating thesis on sci-fi in China, see his dropbox here.

Congratulations to Danny, ChinaTalk’s first essay contest winner. He is a literary translator and freelance writer living in Beijing and has a personal blog.

Visually striking, the speech opens with a roaring claque of Xi’s merry men enjoining claps from an off-camera audience. Our ears are seized by one unknown enthusiast’s bellowing, then before we felt ready, Xi’s speech is already in full flow. As we try to catch up with his message, we watch him shuffle-padding around centre-stage while an array of eminence grise[s] sporting his fashionable tracksuit/v-neck combo do their best to keep formation behind.

It is heartening that amidst China’s deepest crisis in decades, the rarely seen leader&co appear to have taken time out of a busy schedule of public absences to come and say impromptu things about Xi’an Jiaotong university’s history.

This is a special moment. It is among few times in some years that we have had a recording of Xi dada expressing himself free from editing, beautification, choreographed props or a teleprompter to help him keep to Xi Jinping thought (and stay accurate with w Mandarin’s 4 tricky tones.) In spite of limited resources, Xi performs perfunctorily, merging the rhetorical skills of a CCTV propagandist anchor with his cuddly 温柔 [tender] charm.

Maintaining the Party’s resolute stance, Xi conveys a message about the need for adherence to the all important Party line. We are advised that among other things, loyalty will bring the great rejuvenation for China’s people. A message of faith is imparted, echoing Christ’s exhortation, ‘lay down your nets and follow me’, we are told that new life will come if we listen to and follow the Party line.

In a bid to add flesh to his message, Xi harks back to a forced march in the glory days of the anti-rightist movement that took Shanghai Jiaotong’s staff/students to Xi’an. Tactfully he tells the various Xi’an based onlookers that moving to Xi’an was a hardship posting involving great sacrifice for those patriotic Shanghai-ren that took up the call... Why did they do it then? Because they were voluntarily uprooted by Party directive!

The untold history surrounding this is quite a good micro-history that sums up various irksome government actions over the Maoist period. As with many policies that are formulated in closed-rooms by ideologues with their advisors/experts/rightists excluded, shortly after being promulgated this national strategy was quickly revealed to be unnecessary and ill-conceived. However, since the movement had begun, backtracking to Shanghai was deemed impossible/embarrassing. So, those whose lives had been uprooted from Shanghai were now unnecessarily in Xi’an and would stay there. The result of this government intervention eventually led to a schism where Shanghai Jiaotong found inter-national management challenging and soon abandoned its new branch, cutting colleagues off from each other, serendipitously for Xi’s speech, the resulting severing of ties led to the glorious birth of a new school!

Through this seemingly trivial story of the establishment of Xi’an Jiaotong, Xi explains to us that even though vassal-like obsequious obeisance may mean you lose your home because of an unnecessary policy (later decided to be pointless), it could also bring great abstract rewards such as national rejuvenation (at some point.) Hurrah for that.

I’m in the process of launching a spinoff podcast discussing Chinese tv. If anyone has good ideas for a title let me know!