The implications are clear. There is a major risk for the Chinese government that in the process of upgrading its economy it could stoke large job losses in its traditional industries yet create fewer than expected new jobs to absorb the excess capacity, both for the emerging middle class and for hundreds of millions of low-skill workers. If such a situation arises it could have very serious consequences.
Confidence Is Everything
An analysis of Chinese public opinion reveals an interesting paradox and suggests what a destructive effect rising unemployment could have on the popular mood.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
Data from the Pew Research Centre’s Global Attitudes Projects found in 2013 that although a remarkably high 85 percent of the Chinese public were satisfied with the overall direction of the country, in the five years to 2013 the number of people who said issues such as pollution, inequality, corruption and access to high quality healthcare and education were a “very big concern” increased dramatically. For example, while in 2008 just 12 percent of Chinese believed food safety was a very big concern, by 2013 that had jumped to 38 percent. Double digit increases in concern were recorded in no less than 12 of the 17 categories surveyed.
To square the circle of how overall satisfaction can remain so high while worries about a plethora of issues that impact people’s everyday lives are skyrocketing one needs look no further than the public’s response to two questions about China’s economy. When asked by Pew to rate the country’s overall economic performance in 2013, fully 88 percent viewed the situation as good and 80 percent believed it would get even better in the coming year. In effect it seems social tensions are being kept in check by economic optimism.
Therefore the crucial question is if unemployment were to start rising rapidly and people’s economic prospects began to fade would these high levels of overall optimism and satisfaction remain? The strong likelihood is that they would not.
Averting a Crisis
Fortunately for Chinese workers, given the importance the Chinese Communist Party places on high employment for maintaining social stability China’s leaders are likely to do everything they can to stop any rapid rise in unemployment. Given the still considerable economic firepower that remains at the government’s disposal it seems likely, at least in the medium term, it would be able to do so.
However, if the Party were forced to act in such a way there would be serious consequences. Not only would propping up inefficient and outmoded industries to protect jobs be extremely costly; doing so may well also come at the expense of other urgently needed reforms announced at the Third Plenum.
Take for example the interlinked reforms to promote further urbanization, amend rural land ownership and phase out the hukou system of household registration. If unemployment were to rise rapidly all of these policies are likely to be kicked into the long grass. After all, the Communist Party will not want hundreds of millions more people moving to cities if there are no jobs available for them. As keen students of history and international affairs it will not have escaped the notice of China’s leaders that a high level of urban unemployment is often a key trigger for political upheaval. The Arab Spring is only the most recent reminder. It is also unlikely that any real pressure will be placed on SOEs to become more efficient as doing so would only add to the numbers out of work.
Therefore in the years to come the challenge for China’s leaders is to perform a careful balancing act whereby they push ahead with reforms to upgrade the economy but in a way that maintains high employment.
Like all countries, China will have to deal with the challenges that new technology and innovation present to job creation and wages. However, if China wants to ride out this storm it will have to invest heavily in the coming years in the education and skills of hundreds of millions of its citizens to ensure they are able to play a full role in the technology enabled industries of the future.
The danger of failing to do so is that China could face rapidly rising unemployment and plummeting public satisfaction. Such a situation could quickly overturn the social compact the Party has carefully developed over the last thirty years and result in significant social unrest.
John Marshall is a freelance writer focusing on China. Previously he worked at a management consultancy in Beijing advising multinational companies on their China investment strategies and in London for the U.K. government on trade policy.