Unemployment looms despite continued growth

Peng Liu, a recent graduate from Zhongnan University of Economics and Law, Wuhan College, began her job search long before her graduation in June. A student of international trade, the financial crisis has left her with few job options in her field of study. After 10 months of job hunting at fairs and online, she’s still unemployed. She is hardly alone.

“Only one out of six roommates in my dormitory found a job, and her parents helped her to get the job,” she told China Economic Review.

Peng and an estimated 6.1 million university graduates like her flooding the work force this year will face one of the most difficult job markets in recent history. However, while unemployment may be a political dilemma for policymakers, it is unlikely to derail China’s economic growth in 2009 and 2010.

“I don’t see [unemployment] as a big red flag,” said Glenn Maguire, chief economist for the Asia Pacific region for Société Générale in Hong Kong. “What’s important for the economy is not individual income but aggregate income formation across the economy.”

He said that rising military salaries and increased procurement prices for grain within China mean that incomes in a broad sense will likely continue to grow despite rising unemployment. He estimates that China’s economy will grow by 7.5-8.5% this year and 8.5-9.5% in 2010.

Nonetheless, job losses loom over the economy. Unemployment has steadily risen for the past six months, with the urban registered unemployment rate clocking in at 4.3% at the end of the first quarter, compared with 4.2% in end-December and 4% at the end of September. The government did not provide unemployment statistics at the end of the first quarter, but the State Council in early June described the unemployment situation as “grim” and said that the urban registered jobless rate continues to rise.

Analysts note that government figures do not tell the whole story, as they exclude unemployed migrant workers, who number as many as 20 million. Isaac Meng, an economist at BNP Paribas in Beijing, estimates that the unemployment rate in China is probably closer to 7%, though he notes this is still a relatively low figure given the damage done to China’s export economy by the global slowdown.

The Ministry of Human Resources and Social Security said that China created 2.68 million urban jobs in the first quarter, up from 1.77 million the previous quarter. The central government also plans to allocate more than US$6 million from the central government to boost employment, up 66.7% from last year, according to the State Council.

But government measures won’t be able to stem the rising tide alone. BNP’s Meng said that while China’s stimulus package has helped bolster the economy, it hasn’t had a similar effect on employment.

“If China is building a lot of high-speed trains and nuclear generators, this doesn’t create a lot of jobs. The labor intensity of these projects is less spectacular,” Meng said.

In the short term, the key to job creation on a significant scale will ultimately hinge on a rebound of China’s export sector, which accounts for as much as one out of 10 jobs in China, he noted.

The backbone of the sector’s labor force has been migrant workers, who have been faced with mass layoffs as factories close due to weakened global demand. Analysts argue that many of these job losses are occurring against a backdrop of government policies meant to shift China’s economy away from manufacturing and into the service sector.

While many of these jobs may have been lost anyway in the long run, the global economic crisis has quickened the pace.

“The worldwide economic downturn simply is speeding up the process of [the government’s] long-term plans [to move to a service-based economy], though at a rate that may be dangerous in terms of social unrest and ultimately unmanageable,” said Jonathan Hursh, founder of Compassion for Migrant Children, an NGO.

Without a sharp rebound in global demand, exports will continue to suffer, and Meng expects unemployment to further deteriorate in 2010 and possibly in 2011.

In the meantime, recent graduates like Peng will continue to pound the pavement. She’s continuing to look for a job in international trade, but is also hedging her bets by seeking work as an administrative assistant. Should she fail to find gainful employment in the next six months, she will consider going back to school for a master’s degree. Meanwhile, she said she would be willing to work temporary jobs of a more ordinary sort, as a salesgirl or a server at KFC.