Why Are China’s Job Numbers So Bad?

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Last week, China’s National Bureau of Statistics announced it would cease collecting data on youth unemployment. The news came after nearly a decade of poor job prospects for Chinese people ages 16-24, often reported on by international media as mainly a problem affecting recent college graduates. Earlier this summer, ChinaFile’s Jessica Batke spoke with sociologist Eli Friedman, who studies international labor, about the reasons for joblessness among China’s young people and how it is covered.

Jessica Batke: If you’re graduating right now in China, if you’re coming on the labor market, what do you see in front of you? What are you worried about?

Eli Friedman: Well, you’d be worried about getting a job! That structural reality is very much at the forefront of what college graduates in China are thinking about, and it is a big change from much of the past generation.

Since the violent suppression of the student-led movement in 1989, the state struck a basic deal with college graduates, as well as intellectuals and youth more broadly: If they stayed out of politics and they could get into college, they’d pretty much be guaranteed a decent job that would allow them to live a life significantly more materially comfortable than their parents’ or their grandparents’.

That worked really well in the 1990s, in the 2000s, through the turbulence of the 2008 crisis, and into the 2010s. Yet, even before COVID, we’d begun to see cracks in that system. COVID is its own unique moment in all of this, but coming out of COVID the underlying stresses on the system have become really apparent. The previous reality—that if you went to college, you’d be likely to graduate and get a job that allowed you to live a life that more or less matched your expectations—is increasingly not the case. People go to college and might not get a job at all. Or they might get a job, but the pay, the conditions, and the hours mean that they are not going to be able to live a life that matches their aspirations. In some cases, the gap is dramatic. So there’s a lot of anxiety, and, in some cases, fear—or just “giving up.”

There is also the question of overseas students. For a long time, studying abroad in the United States, or in one of the other Anglophone countries, was seen as, if not a golden ticket, at least a pretty solid pathway to the middle class. That is no longer the case. We see that even students who have gotten into reasonably competitive universities in the U.S. or elsewhere are now worried about going back to China. There’s no guarantee that they will be able to get jobs either.

JB: So studying overseas used to get you a little bit of an extra edge, and it really doesn’t do much for you anymore?

EF: I think it does help some in certain industries, but a couple things have changed. One is that Chinese universities have gotten a lot better. The gap between a competitive school in the United States and a competitive school in China has shrunk. Chinese employers are seeing that and saying, “We can hire someone who went to one of the 211 or the 985 universities in China [which have been designated by the government as top-tier institutions], and they’re going to be just as well-trained, and possibly better-trained, than if they went to a school in the U.S. or the U.K.” And in general, I think it’s better for students to be able to go to high-quality higher-education institutions closer to home. It’s definitely a lot cheaper as compared to the United States, graduating with debt or having your family invest hundreds of thousands of dollars.

In terms of Chinese labor market dynamics, being able to say that you speak English is no longer the major mark of distinction that it might have been 20 or 30 years ago. And while the cachet of studying abroad has not been completely eliminated, I think employers are much more sensitive now. Looking at someone’s resume, they’re able to tell the difference between some very elite school like Harvard or Yale versus a fine but maybe less elite public school. So it’s a little bit more complicated than it was a generation ago.

JB: So are more of the Chinese students studying overseas trying to stay abroad rather than return home? In the U.S., everyone’s talking about how hot the labor market is, which would suggest there are jobs available, but the government also maintains lots of visa restrictions. Do you have any sense of what these students are doing?

EF: I don’t have any data on that, but I have seen data indicating the number of Chinese students coming to the United States has decreased. That’s for a number of reasons. Again, educational opportunities are better in China than they were a decade or two ago. In certain cases, U.S.-China hostility has made it more difficult administratively, or people have fears about being caught up in the China Initiative, which unfairly targeted people who are Chinese. But also, I think, because of a general sense of hostility; if you want to study something that’s potentially related to national security, why even bother? I believe, although I’m not 100 percent certain, that many Chinese students studying overseas have just gone to other Anglophone countries, like the U.K. So I don’t think it’s a general pulling back from study abroad, but specifically an issue with the U.S.

In terms of where Chinese students are going after they graduate: This is super anecdotal, but based on the students that I encounter here at Cornell, I’ve seen a clear shift toward more students wanting to stay in the U.S. This is part of a cultural shift that came out of COVID—so-called runxue, or running away. It includes people of that generation who are worried about what their futures will be like in China and are pretty eager to find ways to stay in other countries—the major challenges of staying in the United States notwithstanding, including visa restrictions and concerns about anti-Asian racism. Whether or not more people actually are going to stay in the U.S. after they graduate, I don’t know, I haven’t seen that data. But just in terms of my cultural currents, it’s clear to me more people are like, “If I can stay here, I would really like to do that.”

JB: What is driving the change in unemployment for young people? You said COVID was kind of its own thing, but that we were seeing some cracks in the system even before COVID—so it seems like there are longer-standing issues at play here. It certainly feels to me like I’ve seen news articles every summer for the last 10 years about graduate unemployment in China. Is this year actually any different than the last five or 10 years, in terms of unemployment? Is it just an issue of degree? Or is there a qualitative shift that’s making this different than before?

EF: The number for youth unemployment this year and last year is actually just about the same. If you go back and look at a year ago … I forget the exact unemployment figure, but it was also around 20 percent.

I should first say when I saw that number last year, I was shocked. My jaw dropped. For a long time, labor scholars had just assumed that unemployment numbers in China were manufactured. Unemployment rates going back for a couple of decades hover around 4 percent, with tiny little fluctuations. So I and most people thought, whatever, it’s one of the many manufactured numbers in China. And so when I saw this number I was like, OK, maybe China really had a very, very stable labor market for many decades. I mean, I don’t know, you never know with these things. But in any event, it was quite an acknowledgment of a systemic problem, if not a systemic failure.

This is speculation, but I think the youth unemployment issue has gotten even more attention this year because China is through with lockdowns. Last summer, China was still in the midst of all of the lockdowns, and so everyone knew that there was “artificial constraining,” particularly of consumption. It had a big effect on manufacturing as well. We saw it with COVID lockdowns in places like Foxconn and the Tesla factory and elsewhere. There was a sense that the state had taken extreme measures, restricting the economy and driving up unemployment. But we all knew that, at a certain point, the lockdowns were going to end, China’s economy would roar back to life, these problems would dissipate, and we’d go back to the previous three decades of the China boom. (I never thought that was going to be the case, but there was some hope, maybe some wishful thinking, that it would be.)

Fast forward to 2023. The lockdowns have ended chaotically, disastrously, and tragically. There was a brief burst of economic activity, or “revenge spending,” as well as increases in exports and what looked like some stabilization in the real estate market. But that very quickly petered out. It became clear by the spring that there was not going to be a return to pre-COVID assumptions about growth.

One of the reasons I think the numbers hit a little bit harder in 2023 than in 2022 is because we now understand there’s no easy fix. Last year the easy fix was to end the lockdowns, like the rest of the world had done, and get back to normal. That’s not true this year, and it raises a whole series of much more difficult questions about what ought to be done in order to address unemployment.

COVID, geopolitics, a lot of things that nobody could have predicted that put new pressures on the Chinese economy. But, if you look at the broad structural tendencies over the last 10 years, some very serious changes were always going to be necessary. That has only been intensified by contingent things like lockdowns and geopolitics.

JB: What were the needed changes?

EF: The main thing is the drivers of the Chinese economy, which have been exports and investment.

Exports are particularly important in the economically dynamic regions of the Pearl River Delta and the Yangtze River Delta. They are in many ways the foundation of the China boom that took off in the 1990s—a model of growth predicated on wage suppression. The whole comparative advantage that China had, as identified by the leadership in the 1980s, was this large, relatively well-educated, very cheap workforce. It allowed them to conduct production on a scale that was unimaginable for the other East Asian tigers, like Taiwan and South Korea, which couldn’t compete on scale, or, at that point, on the price of labor or land.

But then the cost of land and labor went up quite a lot—which I think is a good thing—but it meant that, purely on the basis of the cheapness of labor, China was no longer competitive. This was already true in the early 2010s. Indonesia, Vietnam, Thailand, places in Latin America—wages are all cheaper in those places. And wages are much cheaper in India.

So they needed to find new ways of competing and manufacturing. The state was very clear on the need to move from a so-called labor-intensive form of manufacturing to a capital- and knowledge-intensive form of manufacturing. Rather than making toys, socks, and little gadgets, they want to be making high-end electronics, medical equipment, and cars. They want to be engaged in leading-edge technologies, like electric cars, which they’ve been pretty successful at. But making that switch means it’s less labor-intensive. If you have a highly automated form of production that’s turning out something very expensive, like an electric vehicle, you’re absorbing less of the labor force.

The other piece is around investments. That’s the other thing that’s really driving growth. Especially after 2008, you saw much more employment going into construction—building infrastructure, building buildings, building real estate, and all of the associated industries related to the building of things.

JB: Steel, concrete…

EF: Steel, concrete, electric wiring, things like that. It touches on manufacturing as well, because as people are building houses, they have to buy furniture and dishware and all the things that people put in houses.

Manufacturing jobs in China peaked a long time ago, in the mid-2000s, even before the 2008 crisis. Employment in construction continued to go up because of all of the building, particularly after the 2008 crisis, when the state pumped $586 billion into the economy, which mostly ended up in infrastructure spending and the real estate boom.

Spending on infrastructure, which is debt-financed, has come up against some real limits. We see this with local government fiscal stress and their inability to service their debts. We also see it in the real estate market: [major property developer] Evergrande just announced losses of [$81 billion] for the last two years. That’s just one indicator of how badly the real estate market has [done], for all sorts of reasons. China’s population is shrinking. The cost of housing is just absolutely exorbitant.

To bring us back to the question of employment: The big economic drivers, which had been absorbing tens of millions of people migrating from the countryside into the city, are not really driving that much employment anymore. So the shift that China has to make, and that economists and the Communist Party have known about for two decades, is the shift to consumption-led growth. Premier Wen Jiabao was talking about it in 2004, almost 20 years ago. If you look at progress since 2004, consumption as a share of GDP is still down.

Services already do absorb a majority of employment in China, more than in the secondary industries of manufacturing and construction. But the kinds of service-sector jobs that are being created are pretty menial. And this is another really important feature when we think about how this shift is playing out. And when we think about the college grads.

JB: But if jobs are shifting away from manufacturing and toward services—knowing that some of the service jobs are menial—it still seems like there should be more jobs for college graduates. Why are there no jobs for these folks?

EF: One point that is important and is often missed in a lot of the media coverage: Media coverage is very focused on the college grads. I understand why that is. As a college professor, I think about college grads a lot.

But the number that is always cited, the 21 percent unemployment figure, is for all 16- to 24-year-olds. Within that, the proportion of people who are college grads is actually quite small. In China, you have nine years of compulsory education. In the ninth year—that’s age 14 or so—you take the high school entrance exam, and then you get tracked out. Some people go on to the academic high school route—and most of the people tracked into the academic high school route do get into university nowadays—but most people don’t make it onto that track. They either stop education after year nine or they go get some supplementary technical education.

So, if you’re looking at ages 16 to 24, it’s only the 23- and 24-year-olds that could conceivably be university grads. Everyone else in that age group are people who’ve already left school and are looking for work.

I actually didn’t piece that together when I first saw those numbers last year. But then when it hit me, I was like, “This is much scarier than I thought.” If you think of youth unemployment as just college grads, then you lean into the discourse—which is not untrue, but it’s only a partial truth—that college grads don’t want to take jobs in manufacturing, or they don’t want to get a job as a factory worker or in a restaurant. But, actually, the majority of these people did not go to university, and they’re still not getting jobs. That’s the thing that really worries me. It’s not just people turning their noses up at jobs that they think don’t befit a college-educated person. It’s people who are just not getting jobs at all.

Talking about the university grads more specifically: People take jobs because they need enough money to live the life that they want to live. But the gap between the life that they want to live and the jobs that are available is incommensurable right now. You can think about that in a couple of ways.

For one, the kinds of service-sector jobs that are overwhelmingly being produced just don’t pay you enough to live in the big cities where most college grads want to live. The income-to-housing ratio in large Chinese cities is among the worst in the world. It makes New York City look kind of affordable. So if you take the jobs that are available, then you’re not going to be able to buy a house. If you can’t buy a house, you won’t be able to get your kid into school. That is because employment in the formal sector and home ownership are often required to access [residence permits known as] hukou—without establishing hukou, you can be denied access to a range of social services including public education, health care, and pensions.

Now, there are other kinds of jobs that might pay you enough to live that kind of life. But these jobs raise the whole “996” issue—working 9 a.m. to 9 p.m., six days a week. You might have enough money to buy a house, buy a car, and maybe to pay so someone else can raise your child. But I think a lot of young people are not into that anymore. That was really dramatized when all of the 996 activism was happening among tech workers two or three years ago. And there’s a kind of generational difference. Back when [Alibaba founder] Jack Ma was still making public appearances in China, he was kind of berating young people, very dismissive of them, when he said it’s a “blessing” to be able to do 996 when you’re in your 20s—this is what you do when you’re a young person, you devote your entire life to working hard and you can enjoy life later. That fell really flat with young people in China who didn’t grow up in desperate poverty in the way that people who were in their 50s or 60s did. This idea that you have to eat bitterness for decades before you can take a breather … if you grow up living a middle-class life in a big city in China, you’re thinking, “Maybe there’s more to life than just working all the time.”

So, the jobs that are being created right now are either not paying young people enough to live in the city, or they do pay enough but people then can’t live the kind of life that they would like to live. That’s part of the challenge for the college grad specifically.

JB: If you’re the Chinese government, what are your range of options to deal with this? Or what might leaders be thinking about to try to engineer this economic shift? I assume they don’t have infinite time to make the shift, that there will eventually come an inflection point.

EF: There’s not an endless amount of time. If they don’t make a serious intervention, the vitality of growth will gradually be sapped, because they can’t depend on exports. We already see a reorganization of global supply chains away from China. Supply chains are not leaving China by any means, but China is going to be less central to the production of all kinds of commodities in the next few years.

The debt piece is also really important to the extent that households and governments are using their money to service debt rather than making productive investments. That’s also going to undermine the vitality of growth.

So it will be a long, slow decline. If I were a betting person, I would put my money on that, because the other options—which have been known for a long time, which are actually pretty clear and not all that controversial for economists—are very difficult politically. They’re very difficult because the system of growth for the last 30 years has created very rich and very politically connected constituencies that don’t want to change.

Let’s think about real estate and exporters as key groups in all of this. With respect to exporters, if you want to shift from the current wage-repression model to one predicated on a virtuous cycle of higher wages and higher consumption, you have to do two main things. One is you have to raise wages, obviously. One way to deal with this is to allow unions to bargain and collectively push up wages above what the market would determine on its own. The Chinese state is not willing to consider unions, because it thinks they pose a threat to political stability. Another option is that the state could just dictate. It could say, “In this industry, here’s what wages are going to be. We’re going to have dramatic increases in the minimum wage.” There were significant minimum wage hikes during the 2010s, but those increases have slowed considerably since Xi Jinping came to power. The state hasn’t done that. And so the question is, if there is already a dictatorial state, why can’t it just say, “Pay the workers more”? Because doing so would be a political problem. Whole economies are organized around exports; exporters and associated industries are very politically powerful. They have said, “We don’t want that,” and the party has more or less gone along with it.

The other side is social protections: health care. Pensions are particularly important. Education. If you talk to Chinese people about why they’re not spending money, their biggest concerns are about the future.

For example, “How much is it going to cost for me to educate my child?” Officially, compulsory education is free in China, and that is in a sense true. Increasingly, buying a house in the catchment area of a good school has become a more expensive proposition in the biggest cities. This is something Americans can certainly relate to. You’re not formally paying tuition for schools, but you are in essence paying for schools via the real estate market.

On health care, the state has increased investments in health insurance, but it remains extremely patchy, particularly for migrant workers. The subsidies offered in rural areas are wildly inadequate. Hundreds of millions of people fear they are one major illness away from bankruptcy. There’s no national health care system, and there’s no indication that they are considering the sort of comprehensive national system such as exists in many countries.

Finally, pensions are really a big issue, and they’re very, very politically complicated. Because society is aging, there are more and more people of retirement age. (China has a pretty low retirement age, 60 for men and 55 for women, which the government has considered raising.) The pension is a whole separate, complex issue. It is pretty uneven between rural people and urban people, between residents and migrants. Suffice it to say that for hundreds of millions of people, their pension is completely inadequate to live on. That’s why people are dependent on their children. But they only have one child. That child is paying the mortgage, but they can’t really support it.

So the answer to making this shift is raising wages and increasing social protections. The policy prescription is really not complicated. But how to do it politically is extremely complicated. Even a man as confident in himself as Xi would have a hard time doing it.

I think there’s also an ideological component to this. Based on what Xi and other leaders say, I think that they’re just a little bit neoliberal in this respect. Xi was very explicit. He was like, “We don’t want to have excessively generous welfare policies to support lazy people.” Despite the fact that it is the Communist Party, they just don’t see that as their job.

In terms of real estate, it needs to be a less central part of the economy. You have to have a property tax so local governments can generate revenue to support all the welfare programs that we have just talked about. But again, the real estate companies don’t want it. They’re extremely powerful. And lots of otherwise sympathetic middle-class people also don’t want it because Chinese people have a huge percentage of their wealth invested in real estate. They don’t have the same kind of options around equities and mutual funds that people and other wealthy countries have. And so they sink all their money into real estate. And for a long time, that was a really good deal. But if they sunk all their money into a house, and then all of a sudden, it’s being taxed at whatever percent a year, they might not have the income to pay that in addition to everything else they need. So it’s politically very difficult.

JB: I don’t want to do too much mirror imaging here, but I have been struck several times by things you’ve said that seem to suggest similar vibes in China and in the U.S. For example, Jack Ma berating people for not working enough felt very Elon Musk-y to me. Or young people, either “lying flat” in China or “quiet quitting” here in the U.S. And then you just mentioned Xi’s admonition against welfare for lazy people, which really reminded me of [former Republican U.S. Rep.] Paul Ryan’s welfare “hammock.” It’s striking how similar these sentiments seem.

EF: I think there are a lot of similarities. Since you mentioned Elon Musk, he’s actually tried to use the Chinese example to break his American employees, to get them to burn the midnight oil. The reality of what was going on at Shanghai Tesla was that workers were put in the closed loop in the Tesla factory during the Shanghai lockdown. They went in being told that they might be there for a few days, and they ended up there for [nearly eight weeks]. So that’s the model that appeals to guys like Elon Musk and Jack Ma. And I can tell you for a fact that the Chinese workers who were in there were not doing it because they’re more morally upright or more committed to increasing the wealth of the world’s wealthiest man. They just didn’t have a choice. I think we should commend Tesla employees in the United States for refusing to do that.

Your broader point about the similarities—not just between the U.S. and China, but also between China and many other countries around the world—is really important because sometimes amid all of the geopolitical strife, we imagine these two societies as fundamentally different. Actually, I think that a lot of the same global pressures are being brought to bear on both societies. A lot of the particulars are different: The expansion of higher education in China has been much more rapid; the social change and the generational difference in experience between people in their 60s versus people in their 20s is different for sure.

I teach at a university that has lots of young people from the United States and from China. I think that the broader question—about how people can make a decent life for themselves given the structural conditions—is something that’s troubling to people in both places, and that is unfortunate. I wish it were grounds for solidarity between young people of our two great nations.

JB: I’m a bit hesitant to ask this question, because there is a tendency on this side of the world to frame everything in terms of, “Is this going to be the thing that brings down the CCP [Chinese Communist Party]?” But a Bloomberg article last month quoted a report from advisors to Xi that said that if they don’t get a handle on youth unemployment it could cause serious political problems. Do you think this is becoming a more salient issue for the government? What might the government do to mitigate the possibility of serious political problems or unrest if it won’t alter the economic status quo?

EF: First of all, I think it’s a totally legitimate question to ask. What are the potential political consequences of this structural condition? I don’t think it spells the end of the Communist Party, and I think that we shouldn’t speculate about that too much. But we should think through what those potential political effects are.

As I’ve already said, after 1989, the central deal between the state and educated young people was that if they stay out of politics, they can expect regular material improvements in their lives. The Communist Party sees educated youth as one of their core constituencies that they really want to keep happy. Part of the reason for that is because of the Communist Party’s own history. They were founded by educated young people. Mao [Zedong] was working in the Peking University library. Deng Xiaoping had studied abroad in France. They’re keenly aware that dissatisfied educated young people can present a political challenge to the existing state. And so if that deal—political acquiescence in exchange for material improvement—is unraveling, then they’re going to have to find another way of handling this group of people.

The tools that they have at their disposal are different for college graduates than they are for lots of other people in Chinese society who are dissatisfied. The Chinese state spends a lot of time thinking about risks to political stability. When it comes to Uyghurs, they have one set of tools for overwhelming repression—camps, surveillance, all of that. They can’t use those tools on college graduates, for a whole variety of reasons.

But there are other things they could do around the margins. They could certainly do something with respect to housing. A robust public housing program wouldn’t necessarily require a complete overhaul of the economy. They could keep some of that capacity around construction going and allow people to feel a little bit less anxious about making a life for themselves in the city. We’ve seen some housing programs here and there, but it continues to be very piecemeal. And overall, urban real estate continues to be very market-driven.

The liquidation of the entire private tutoring industry—which is targeting young people before they graduate college—is an acknowledgment of sorts that young people in Chinese society feel like they’re under too much pressure, and they don’t want them to be going to all of these hours of tutoring. There have been efforts to restrict the amount of homework that schools can assign and to turn the temperature down a little bit on testing. All of that is an indicator that they’re interested in doing something to address some of these issues.

Assuming that they’re not going to be able to enact deep structural reforms that would really resolve this problem, which I don’t think is very likely, the question then is, if there are a lot of people with grievances, what are the likely political consequences going to be?

And I think that the political consequences will probably not be very serious. What will probably happen is that lots of people will suffer from depression and anxiety, and that what is a fundamentally social problem will be put on the backs of individuals to bear by themselves.

JB: Sounds familiar.

EF: Yeah, that’s true most of the time. As an educator, I see it very clearly, in rising rates of depression, anxiety, and other mental health problems among young people.

So I think that will largely be the extent of it. The avenues for political expression are pretty limited. You can’t join a political party, you can’t join a union, and you can’t form your own organization. There are online communities that pop up here and there, but if they get too big, they get censored and reined in. The state doesn’t have to use the kind of repression that they use against Uyghurs or Tibetans. They can use a more delicate form of oppression.

But in terms of political consciousness, I do think that there has been a significant shift among highly educated youth in China. I’ve seen this among my students here, and I’ve definitely seen it in the writing that students back in China are doing.

The clearest example of this was during the white paper movement. The protests were not representative of youth in general; the total number of people who were actually out on the streets shouting, “Down with Xi Jinping!” was pretty small. So who’s to say what the majority of people are thinking. But the fact that it was even possible, I mean, saying “Down with Xi Jinping, down with the Communist Party” in public was unthinkable in October 2022, and in November 2022, it was happening all over the place, including here at Cornell, and in many places around the world.

During private conversations with many people, I’ve seen folks who were previously quite patriotic and pro-government say, “Wow, if the government can just lock me in my apartment in Shanghai for months—me, a relatively privileged, well-educated person—what else could they do to me?” Also, the things the government has promised about a better life—trust the Communist Party and your livelihoods will improve—that’s not really panning out anymore. That has effected a change. Whether that actually eventually translates into action is another question. But it is now another problem for the state to manage, in a way that they haven’t had to manage, coming from what had been a pretty solid base of support for them for a few decades. The Tibetans, the Uyghurs, and Hong Kong were always troublesome for them. But here in the core, in Beijing, in Shanghai, and in the big cities, they have this other concern, and so they’ll have to pay more attention to it.

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