A Perfect Storm Is Hitting China—Tons of Graduates With No Jobs – Barron’s

First, unemployment for Chinese aged 16 to 24 rose for the sixth straight month to 18.4%, the highest since China began releasing such data, according to the National Bureau of Statistics. Bank of America analysts said the rate “may reach 23% in July-August”—the period when most Chinese university students graduate.

And those graduates will number an estimated 10.76 million, the most ever in China and 1.67 million more than last year, according to the Ministry of Education.

In other words, more Chinese young people will attempt to enter the workforce than ever before, with more of them not finding work than ever before.

Premier Li Keqiang recently called China’s labor market among young people “complex and grim.”

The situation is years in the making for structural reasons. But recent factors like the pandemic and belt-tightening in the regulation-plagued tech sector have exacerbated matters.

Tencent Holdings (ticker: 700.Hong Kong), and Alibaba Group Holding (BABA)—huge employers of young tech talent—are both likely to lay off thousands of workers this year, due to sector crackdowns and the overall economic slowdown, The Wall Street Journal reported in March.

Even morale is a factor, according to a spokesperson at the statistics bureau this week, who cited young people’s lack of ambition in pursuing stable employment. This seems to bear some truth, with the emergence of China’s so-called lying flat movement.

“All of my close friends went to college in good schools in the West,” said 24-year-old Chinese Yang Jing, who is in graduate school in Australia. “But when they returned to China, they could only get jobs if their parents were connected and pulled strings, or menial jobs that required overtime without overtime pay,” she said.

“And those are just the ones that secured some form of employment,” she added.

One study last year concluded that “in developing countries of Asia [including China], the unemployment rate will be three times higher as compared to advanced countries in the coming years, and it will take double the time to address the impacts of Coronavirus in developing countries than in developed countries of Asia.”

Two confluent factors could make the situation worse. President Xi Jinping has said that under no circumstances would the country drop its rigid zero-Covid policy, which entails lockdowns and business closures. Yet China’s current virus-containment status appears tenuous—with a Beijing official this week calling the city’s outbreak “ferocious”—meaning the economic effects of Xi’s policy would hit harder, including in unemployment.

Because of this, officials “are set to step up policy supports in the coming months to save the labor market,” Larry Hu, chief China economist at Macquarie Group, wrote in a recent note.

The best remedies, the Bank of America economists advise, include employers covering employee wages under lockdowns, and targeted cash handouts to the unemployed. Yet China’s stimulus measures have been nearly devoid of meaningful consumer or household-related measures, instead relying on supply-side measures such as infrastructure and property investments, and tax cuts for businesses.

Premier Li Keqiang has repeatedly said that tax and fee cuts for businesses are the top choice for China to revive its economy.

In a move that drew rebuke online, China’s cabinet last week released a plan urging young graduates to relocate to the countryside to work as village officials or start their own businesses. For many, it evoked the decade during Mao Zedong’s reign when 17 million urban youth were forcibly exiled to the countryside to work on farms and be “re-educated.”

While this perfect storm of abundant young jobseekers alongside a dearth of jobs will impact a range of areas, from health to household debt to stifled career trajectories for entrants, the consumer sector may have it the worst. Retail sales dropped for the third straight month in May, in nearly every category.

“At the onset of unemployment, monthly spending drops by 6%,” University of Chicago professors found in a much-cited study. Once unemployment “benefits are exhausted, spending falls sharply by 12%.” Consumer spending “smoothly” follows these income drops, they found.

Within that drop, luxury spending is likely to suffer the most. Before the recent hard times, China was predicted to account for half of all global luxury spending, according to McKinsey and Bain studies. And in China itself, nearly all of such spending comes from people in their 30s and below, the Harvard Business Review reported.