So much for the end of stimulus. Early this year, many economists wagered that by the second half, Beijing would be negotiating an exit from the US$586 billion fiscal spending package and associated credit expansion that dragged the country out of its downturn.
But while annual GDP growth is still expected to be near 10%, the government is sticking to its position that any recovery is fragile as long as export markets like the US and Europe remain wobbly. Monetary policy will stay "moderately loose," though its flexibility will be "enhanced."
Bank lending is likely to hit US$1 trillion, down from US$1.4 trillion in 2009, but still markedly higher than previous years. Fiscal spending will remain robust as Beijing remains keen to keep investment humming along.
Abundance of caution
That would appear to be welcome news for the tens of millions employed in jobs linked to China’s stimulus package – particularly after China International Capital Corp (CICC) warned in June that China could face "severe" employment losses in 2011 as stimulus wraps up. While such a situation remains possible, Beijing is being overcautious: The reality is unlikely to be so dire.
The National Development and Reform Commission (NDRC) estimated in 2009 that fiscal and monetary stimulus led to the creation of 5.6 million long-term jobs and 50 million temporary jobs. As is often the case, the truth behind the numbers is more complicated than it might appear.
"It’s more about the quality of these jobs. It’s all very well to say that we’ve created jobs. But what sort of jobs are they? Are they going to bring enough income to stimulate consumption?" said Jinny Yan, an economist with Standard Chartered (STAN.LSE, 2888.HK) in Shanghai.
Government numbers aside, Yan says it is difficult to quantify exactly what impact the stimulus measures have had on the labor market. Accurate employment statistics are hard to come by at the best of times: Officially, China’s urban unemployment rate was just 4.3% in September 2009, but official data don’t include migrant workers, which the US government estimates could push the number as high as 9%.
The potential for high unemployment has made creating jobs to maintain social stability a central focus throughout the downturn. Reports of workers in coastal areas forced out of work as export-focused factories shut down circulated widely in 2008 and 2009. By February of last year as many as 26 million migrant laborers were said to be unemployed.
Now, however, a sign of the success of basic job creation can be seen in the labor shortages frequently reported by coastal factories. Stimulus projects ramping up around the country have helped to convince many migrants to work closer to home for high-enough wages.
"There are more opportunities closer to home for many workers. They’re less inclined to leave their families, to be far away in Guangdong when they live in Gansu," said David Abrahamson, project manager at the China Center for Labor and Environment (CCLE) in Shenzhen.
Stimulus alone cannot be blamed for the labor shortage. Even if one assumes that stimulus projects temporarily sucked up 50 million workers, that would still represent a relatively small percentage of China’s total labor force.
Lu Ting, China economist at Bank of America Merrill Lynch (BoAML; BAC.NYSE) says that the shortage reflects a much more fundamental process. With millions of laborers joining China’s urban workforce every year, the surplus labor in rural areas continues to shrink. As far as migrant workers are concerned, it has become a seller’s market.
The result has been increasing wage pressure across the country, with localized increases – such as those for factory workers at electronics manufacturer Foxconn (2038.HK) and at auto parts suppliers – echoed by rises in the minimum wage in nine provinces and cities this year.
"You have people leaving their jobs because they don’t like the uniform," said Abrahamson at the CCLE. "You can really be pickier about your job than you could just four or five years ago." While he concedes that the end of stimulus projects could make the job market slightly more competitive, he says the overall balance will remain in favor of workers.
And it’s quite possible that the effects of stimulus projects won’t end, as such. Beyond Beijing’s intention to basically maintain its current monetary and fiscal policy, there is plenty of room for development and job creation.
"Once the investment is there, it’s temporary, but most of it will be rolled over," said Lu at BoAML. "Those projects will last for several years, and once these projects are done, there will be new projects. The only thing the Chinese government needs to make sure is that the growth will be sustained."
Lu contrasts the effect of the Chinese stimulus policy on the job market with its American counterpart. China’s much higher rate of growth will mean job creation even as stimulus projects fade out. "[In the US] some jobs are created purely because of the stimulus package. Once the stimulus is gone, there are no more such jobs. China is very different," he said.
As Yan at Standard Chartered indicated, Beijing is interested in more than simply creating jobs. Even as it deals with the risk of instability, the central government remains concerned about establishing a base for more sustainable growth.
Rising wages, particularly of lower-skilled workers, will help, but the kind of stimulus Beijing favors will also change: Yan said that if Beijing chooses to increase fiscal spending in the face of a slowing global economy, it would be unlikely to pour money once again into large public works projects.
"What we’re talking about with the fiscal loosening is more social spending, longer-term spending: education, health," said Yan. "Hopefully these will create much longer-term labor, and of course these will require skilled labor rather than low-skilled workers."
A serious global slowdown – the so-called "double dip" – could still have an impact if layoffs spike in the export sector. However, said BoAML’s Lu, the already-tight labor situation means that high export growth numbers aren’t necessary to keep unemployment down
"It’s not necessary to have high growth to sustain job growth, you just need growth … Growth will create jobs, and growth will sustain those jobs," said Lu.