Flawed figures mask China’s economic time bomb

Unemployment numbers leave analysts baffled as the world’s second-largest economy defies gravity

Wading through China’s data can at times feel like tiptoeing across a minefield in hobnail boots. You never know where the unexploded economic bombs are buried. 

Not that you would know it from the numbers released by Beijing.

Officially, the world’s second-largest economy continues to defy gravity in a world battered by Covid-19 waves and a home-grown property crisis built on bad debt.

In 2021, GDP growth exceeded expectations at 8.1% after a historic collapse in activity at the start of the previous year. The country’s trade surplus also hit a whopping US$676.43 billion, the highest since records started in 1950.

Yet beneath the myriad of data released last week lurks an unemployment threat that will pose a major challenge for President Xi Jinping’s economic team in the next 12 months.

Highly-paid manufacturing jobs have been lost in part to automation despite the export boom. Construction work is also “in decline,” fuelled by the turmoil surrounding the property sector and the US$300 billion black hole engulfing real estate giant Evergrande. 

“If there’s [one economic] thing that spooks policymakers in Beijing, it’s bad news on jobs. And this is bad news. The context is important too. Lower paid service or gig jobs now [account] for most employment,” George Magnus, of Oxford University’s China Centre, said in a tweet, referring to hiring projections.

Services sector

At least 47% of the workforce are employed in the services sector, which stagnated in 2021 amid weak consumer demand. The travel and hospitality sectors were particularly sluggish.

Amazingly, those headwinds failed to blow a hole in the annual urban unemployment figures. They remained steady around the 5% mark, according to the National Bureau of Statistics. Even youth unemployment, or people aged between 16 and 24, dipped to 14.3% annually after surging to 15.3% in August.

“Weakness in manufacturing employment can potentially be explained away after nearly [two years] of strength there. And China has persevered [through off and on] services job weakness for a while. But both sliding simultaneously, into a dangerous window for Omicron, is indeed alarming,” China Beige Book, the research group, tweeted.

A sprinkle of Omicron cases in major cities across the nation has triggered mass lockdowns and blanket testing as part of Beijing’s zero-Covid policy.

The rapid response also came just weeks before the Winter Olympics in China, known as the “Bubble Games”, with competitors, officials, and the media isolated from the general public.

China’s trade surplus rocketed in 2021. Photo: File

In the real world, tackling rising unemployment will become a priority in the halls of political power long after the sporting circus has left town.

“China’s leaders [have] flagged ‘economic stability’ as their top priority [in 2022]. Officials further noted that unemployment among younger urban workers could threaten social stability,” Craig Singleton, a former American diplomat, wrote in a commentary for the Foundation for Defence of Democracies earlier this month.

Former Finance Minister Lou Jiwei had already set the mood music at a Beijing forum held by the China Center for International Economic Exchanges in December.

“There are insufficient figures reflecting negative changes [in the economy],” he said, adding that official numbers include new jobs created but fail to take into account whether those people are then laid off after six months or more.

Urban unemployment statistics for the 280 million migrant workers fall into this grey area even though they make up close to 35% of the country’s workforce.

No wonder skepticism has grown among analysts, economists and academics about the validity of China’s official data and, in particular, the jobless rate. In a report released last year, London-based Fathom Consulting stated that the numbers for the unemployed and underemployed had soared to 17%. Seven years ago, it was roughly 5%.

‘Scientific methods’

“It is a reflection of the inefficiencies in China’s economy. [There is] a substantial hidden under-employment problem,” Joanna Davies, an economist at Fathom Consulting, said.

She also stressed that workers in state-run companies may be officially employed but are “not productive” and their jobs provide “little or no economic return.”

To illustrate the dilemma, even China’s powerful State Council has admitted there are serious flaws in compiling and processing data. New guidelines were released last month.

“The effectiveness of the statistical supervision mechanism needs to be improved. [We must] adhere to scientific methods to make statistics timely, accurate, and reliable. We must prevent falsehood and resolutely curb ‘corruption in numbers’,” the guidelines said.

It is open to debate if this will affect China’s gravity-defying economy. But it might send the unemployment figures sky high.