Unemployment fears lurk behind China’s economic data

Rising unemployment, stagnating wages and trade concerns threaten China’s economy.

Later this week, thousands of delegates will attend the National People’s Congress in Beijing for the annual talkfest. High on the agenda for the de facto parliament will be these key issues.

At least a reminder of the challenges ahead was brought into sharp focus by the latest data on factory activity. On Monday, the Caixin/Markit Manufacturing Purchasing Managers’ Index was released and it fell to the lowest level since May 2020.

“Overseas demand continued to drag down overall demand. Manufacturers highlighted the fallout from domestic flare-ups of Covid-19 in the winter, as well as the global pandemic,” Wang Zhe, a senior economist at Caixin Insight Group, said.

The facts: 

• Even taking into account Chinese New Year, February’s figures were disappointing.
• They came in at 50.9 last month, compared to January’s reading of 51.5. 
• The 50-mark separates growth from contraction on a monthly basis.
• Last week, the official manufacturing PMI fell to 50.6 from 51.3 in January, the National Bureau of Statistics revealed.
• Still, the Caixin/Markit PMI showed that “confidence” in the year ahead jumped to 63.0, the highest since October.
• The independent PMI tends to cover the private sector and small- and medium-sized businesses.
• The official PMI looks at factory activity in major companies and state-owned enterprises.
• China’s manufacturing sector is the largest in the world.
• It makes up nearly 30% of the global market. 

What was said: “Now the major challenge for policymakers will be maintaining the post-coronavirus recovery while paying close attention to inflation,” Wang, of Caixin Insight Group, said.

Reaction to the news: “A sub-index for employment in the official PMI stood at 48.1 in February, down from January’s 48.4 and marking the lowest since March 2020 as companies laid off more workers and at a faster pace,” Yuan Talks, an independent media group specializing in China’s financial market, said.

Delve deeper: Wang Wentao, who heads the Ministry of Commerce, warned that dark clouds are just beyond the horizon. “We think the situation of China’s foreign trade this year remains grim and complex,” he said. Unemployment is also a priority that will need to be addressed. “We should particularly focus on certain groups, expand employment channels for college graduates, and [help] struggling urban workers,” Vice-Premier Hu Chunhua said.

China Factor comment: Unemployment is a word that is rarely mentioned in China. Official statistics are notoriously inaccurate and fail to cover millions of migrant workers in the cities. But the nightmare of lengthening jobless queues certainly keeps the ruling Communist Party elite awake at night. Expect new employment measures to be rolled out at the National People’s Congress this week.