China’s Economy Is Faltering

Authored by Terri Wu via The Epoch Times (emphasis ours),

With graduation less than a month away, many college students in China are still scrambling to find a job.

At a free live-stream webinar by a jobseeker training company in mid-June, many of the 800 participants—primarily unemployed 2023 and 2022 graduates—logged eager comments to claim free templates for resumes.

“Many of my trainees told me that they live with their parents, who had been scolding them for not trying hard enough to land a job,” the host told the attendees.

“I can tell them [parents]: finding a job this year is challenging. It’s the market; it’s not you,” the host added. “Forwarding my webinar to your parents will help you alleviate the anxiety.”

Anxiety was undoubtedly the prevailing mood among attendees of the webinar held on a popular Chinese social media app, as shown through emojis and remarks in the comments section. The macro numbers point to a similar picture.

China’s official youth unemployment rates were 20.8 and 20.4 percent in May and April, respectively—about four times the overall unemployment rate of 5.2 percent. It’s also about double the level of young unemployment just before pandemic measures kicked in.

This rate means that one in every five 16- to 24-year-olds seeking work in urban areas don’t have a job. And the percentage doesn’t include those not looking for employment: two-thirds of China’s 100 million young urban population.

This growing crisis prompted Chinese authorities in April to announce a series of policy incentives to take effect by the end of 2023, including subsidiaries for expanding hiring by state-owned enterprises (SOE), encouraging financial institutions to increase hiring and business loan issuance, offering more vocational training, and creating no less than a million internship positions.

Still, higher youth unemployment is expected for the next few months, according to a May estimate by Goldman Sachs.

On June 18, the investment bank also cut China’s 2023 gross domestic product (GDP) growth forecast from 6 to 5.4 percent, citing macroeconomic issues—property sector, debt issues, and U.S.-China tensions—that are unlikely to be addressed by China’s stimulus measures.

China’s central bank started cutting interest rates in mid-June, following a deposit rate decrease by major banks. Goldman’s downgrade followed similar assessments by a host of major banks, including UBS, Bank of America, and JPMorgan, that have lowered their GDP growth outlook for the country.

Long Before the Pandemic

Today’s high youth unemployment rate is a symptom of years of ambitious growth on paper supported by a heavily indebted economy, according to Christopher Balding, an expert on the Chinese economy at the Henry Jackson Society, a UK-based think tank.

The problem, he said, preceded the pandemic, and has been 15 years in the making.

“I don’t think the pandemic’s contribution to this is zero. However, I don’t think it’s a majority,” Balding told The Epoch Times. “The pandemic probably made it a little bit worse, but these problems would exist with or without the pandemic.”

In response to the global financial crisis, Chinese authorities released a fiscal stimulus package of 4 trillion yuan ($586 billion at the time), equivalent to 12.5 percent of the 2008 GDP, according to the World Bank. By comparison, the U.S. stimulus package was $939 billion from 2008 to 2010 and about 6 percent of its 2008 GDP. China’s central bank also loosened money policy significantly by cutting the interest rate by over 2 percent to 5.31 percent in December 2008.

Balding said that China went on a path of pushing for artificially high growth rates after 2008, growing infrastructure regardless of demand. At the same time, Chinese authorities, companies, and families have piled on debt.

China’s core debt—credit to the non-financial sector—is nearly three times its GDP, compared to the U.S. ratio at 2.5 and emerging market economics at an average of 2.2, according to the Bank for International Settlements, known as the central bank for central banks.

On June 17, China’s State Administration of Market Regulation issued a new regulation to “restore credit for business entities.”

“It’s basically advising banks to help firms repair their credit, ignore firms’ missed payments, and so on,” said Balding. “The fact that they’re putting out that type of advice to financial institutions, as a regulator, speaks to the depth of the problem related to debt.”

“And if you’re a heavily indebted company, taking on more debt or taking on additional labor is a very big ask,” he added, referring to the Chinese Communist Party’s (CCP) policies to stimulate hiring.

China’s household debt-to-GDP ratio rose steadily from 17.9 percent in December 2008 to 63.3 percent in March 2023, compared to 65.7 percent in the United States. More tellingly, the Chinese household debt as a percentage of disposable income reached 130 percent by the end of 2020, more than that of the United States at 100 percent the same year.

In Balding’s view, China’s supply-driven growth has hit a wall and can theoretically be solved by stimulating demand. However, he considers driving demand unrealistic because the CCP cannot do what’s required—that is, to empower consumers and give individuals the freedom of choice.

“I think there’s a lot of possibilities or a lot of hope for China, but it would absolutely require dismantling policies in China that are not going to be dismantled,” he said, citing restrictions on interprovincial migration and the latest rural management restrictions on the use of arable land.

Antonio Graceffo, a China economic analyst, said the regime has routinely responded to economic trouble by investing in infrastructure. But that approach might not work again this time around.

“All the sensible infrastructure has already been built in China; we’re at a point where all the major ports, the cities, everything is connected. So when they build more infrastructure now, it’s really just making work,” he told The Epoch Times.

“You’re just creating jobs, paying for it out of the public revenues, and it’s not necessarily yielding any sort of significant GDP advantage.”

The country, he said, no longer has the types of infrastructure projects such as the Beijing-Shanghai high-speed rail to fuel GDP growth again. “I think China has seen their biggest growth that they’re ever going to see,” Graceffo, a contributor to the publication, added.

Beyond the Official Number

China’s official youth unemployment rate may not capture the full story.

Jobseekers between the age of 16 and 24 include middle and high school graduates from rural areas seeking urban employment and city students with undergraduate degrees.

A professor at a private college in Guangzhou, a mega city in China’s affluent coastal south, believes the actual rate is much higher than the official 20 percent—as high as 80. She spoke to The Epoch Times on the condition that her name, college, and professional field be anonymous to avoid being tracked down by the CCP.

Only two of the 350 graduates in her department this year have found jobs. With graduation on June 28, students must provide employment information to get the diploma.

The official proof for employment is the “three-way agreements,” but schools also accept any form of labor contract. The “three-way agreement” is signed between the student, an employer, and the school to satisfy the requirements of the local government human resources agency.

“Students are not issued a diploma if they do not provide employment paperwork. The rule is understood but not written,” the professor told The Epoch Times, adding that if a student would challenge this rule to the school or the city’s education department, the school would then withhold the diploma citing insufficient internship credit.

As a result, students forge employment in various ways, according to the professor. He cited the example of a friend whose son has not worked for three years after graduation but is “employed” on paper.

In China, public colleges are of a higher academic caliber than private ones and charge less tuition. They are the common campus recruiting sources for SOEs, and they have creative ways to boost their graduates’ employment rate.

The professor, who previously taught at a public college, said that public institutions engage in a practice known as “hitchhikes” to skirt the rules. For example, if an SOE had a quota of two new hires for a college, the college would give the SOE a list of 12 more student names to ink fraudulent three-way agreements. In this way, the university’s “education quality” report looks better, and its unemployment rate is also lower on paper.

Since three-way agreements are not real labor contracts, signing such “hitchhiking” paperwork doesn’t result in actual employment.

Last year, the professor began to hear about employment difficulties from her students, a problem that become more prominent this year. In Guangzhou, most of the students find jobs in foreign or private Chinese enterprises; very few go to SOEs, where students’ family connections are essential for job placement. However, job availability in foreign and private companies has shrunken significantly due to foreign investment leaving China and the authorities’ clampdown on the private sector.

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