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China’s Slowdown Is Starting to Hit Where It Hurts: Employment

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China Power

China’s Slowdown Is Starting to Hit Where It Hurts: Employment

From manufacturing to internet companies, China is shedding jobs across sectors.

The growing downward pressure on China’s domestic economy has made the employment situation particularly grim.

At a meeting in July 2018, the Chinese Communist Party’s Politburo analyzed the current economic situation and proposed stabilizing employment, finance, foreign trade, and investment to tackle external changes and ensure stable economic operations effectively. Within that list, the Politburo ranked “stabilizing employment” as the first and most important task. In addition, the report of the 19th National Congress of the CCP also stated that employment is pivotal to people’s well-being, noting that instability in employment will affect the standard of living and may ultimately affect social stability.

From this perspective, stabilizing employment is tantamount to safeguarding social stability from economic risk. China’s employment situation is generally stable and improving, but there are changes and difficulties in maintaining stability, Zhang Yizhen, vice minister of human resources and social security, said at a regular policy briefing of the State Council on December 5. The Hong Kong media said that the rare use of the phrase “difficulties in maintaining stability” was a grim omen for China’s employment situation.

The reality confirms the grim employment situation in China. The internet industry is experiencing a downturn at the moment. Baidu, Alibaba, and Tencent (often collectively referred to as BAT), China’s internet giants, are a desirable place for job seekers. But since September, the news of Alibaba scaling back its campus recruitment program has caused an uproar on the internet. At the same time, news spread that Baidu and have stopped social recruitment and that Tencent will lay off about 6,000 of its staff.

As one would expect, the companies have denied the rumors. However, research data from the human resources industry tells a different story. According to data from a recruitment platform, in the third quarter of 2018, the number of jobs advertised in the IT/internet industry decreased by 51 percent compared with the same period of last year. It was the second consecutive quarter of negative growth in demand, and the contraction of jobs was much higher than the national average.

The layoffs in the internet industry are visible, but the mass job losses in the manufacturing industry have not attracted enough attention. China’s manufacturing industry is sending out a series of worrying employment signals: Foxconn, the contract manufacturing giant, is reportedly set to cut 340,000 jobs worldwide and cut RMB 20 billion (around $3 billion) in spending in 2019. In November, a study of Tencent Technology found that Foxconn had less time for overtime work. According to a worker at Foxconn’s Shenzhen Guanlan Technology Park, the queue time for a meal was more than 20 minutes during the peak period of 130,000 to 140,000 workers in the factory last year; however, since the number of workers has been reduced to 70,000 to 80,000 recently, remaining employees don’t have to wait that long for a meal. “In the past, thousands of workers flowed in and out every day, but now, there are thousands of people leaving every day, but the factory is not hiring anymore,” the worker recounted.

On the other hand, due to plummeting orders, the glass lens supplier Bern Optical has been forced to lay off 5,000 workers, which led to a massive labor dispute. Flextronics Plastic Technology, a subsidiary of Flextronics Ltd., is in a tough spot, as can be observed through its six batches of “long holidays” within November 12 to February 1. It is also worth noting that many migrant workers returned home early, months before the Lunar New Year. The main reason is that many factories have fewer orders, so factories decided to let their workers have an advance holiday rather than paying them wages when there is nothing to produce. In fact, these workers are effectively losing their jobs in disguise.

It is worth noting that the economic downturn has hit China’s private enterprises the most. According to statistics, private small and medium enterprises (SMEs) account for 80 percent of Chinese employment. If private enterprises fail, unemployment will certainly increase.

The employment situation in other industries is not optimistic, either. The semi-annual report of the brokerage industry showed that 9 brokers have laid off 4,186 workers. Among them, the Oriental Landscape Co. Ltd. has laid off 30 percent of its staff; the CEO’s salary has been reduced from millions to less than RMB 20,000 per month; many researchers have transformed themselves into sales staff… After China’s stock market plunge in June 2018, the secondary market was sluggish, and the hardships of the financial industry were still to come. The government moved to tamp down shadow banking; as a result, the financing cost of real estate enterprises soared. Thus, downsizing and layoffs became the first choice of real estate enterprises to survive. As senior officials of Centaline Property said frankly: “Now it is the elimination competition of ‘queue up to die’; the winner will be the one who has the strength to be the last standing.”

And as new college graduates flock to the job market, the pressure on total employment will also increase. Lu Aihong, the spokesperson for the Ministry of Human Resources and Social Security, said recently that the number of college graduates in 2019 is expected to be 8.34 million, an increase of 140,000 over the previous year.

The pressure on total employment is still very large, and the structural contradictions in employment are still very prominent. At present, both domestic and foreign instability and uncertainties are on the rise, which will in turn affect the production, operation, and employment of some enterprises. That means the employment situation is still severe and complicated. Therefore, it is necessary to take a step to coordinate the employment of various groups of people, expand employment channels, and strive to achieve higher quality and full employment of college graduates.

To this end, Premier Li Keqiang recently hosted a State Council executive meeting to identify targeted measures to further promote employment. First, those insured enterprises with stable employment are eligible to claim a return of up to 50 percent of their unemployment insurance premium through a fee reduction. The second measure is to support entrepreneurship to drive employment. The government will promote entrepreneurial employment through government financing guarantees and encouragement of secured loans for start-ups. Private enterprises, SMEs, and micro enterprises are the main sources of employment; thus, all policies that supporting entrepreneurial employment should focus on them. Third, participation in skills training should be encouraged. The government will support unemployed people to participate in various kinds of skill training and give training subsidies to qualified participants. The fourth measure is to ensure timely release unemployment insurance benefits to eligible unemployed persons, and make sure that basic medical insurance and other expenses will be included in the unemployment insurance fund. Fifth, all localities should give higher priority to the unemployment issue, and take appropriate, multiple measures to promote employment.

Judging from the recent developments, the risk of unemployment in China is increasing and the unemployment rate is approaching a dangerous level. Domestic economic policies are in urgent need of adjustment and it is also suggested that the government should introduce a largescale stimulus policy to deal with domestic unemployment. At the end of 2017, Anbound proposed that China needs a massive stimulus policy of RMB 30 trillion to 50 trillion in the future. Such a “drastic” proposal is actually a prejudgment after a rational analysis of China’s economic and social system by the Anbound research team. The size of current China’s economy has been greatly enlarged since the “RMB 4 trillion” stimulus policy was adopted, and it has exceeded RMB 80 trillion.

This type of largescale stimulus is more systemic, which is different from precise regulation. Because China’s economy is facing systemic problems, precise regulation can only serve as a “blood transfusion” for specific fields, but it cannot stimulate the activity of the entire economic system. Therefore, comprehensive stimulus policies are needed to generate the self-regenerative function of the whole economic system. The core function of a massive stimulus policy is to expand the market to create more demand, so that enterprises could make more money, and are willing to recruit more and more workers. Therefore, employment levels can settle down and lay a foundation for steady growth.

Yu Zhongxin has a Ph.D. from the School of Economics, Renmin University of China and is a researcher at Anbound Consulting, an independent think tanks with headquarters based in Beijing. Established in 1993, Anbound specializes in public policy research.