Jobs on the line

Worries that more of their work is going to Vietnam...

“Stability must take precedence over everything.” So said former paramount leader Deng Xiaoping in one of his more famous quotes and it has been a theme in 2018: the fortieth anniversary of the launch of China’s ‘open door’ policy.

For the past four decades, China has tried to maintain stability and the rule of the Communist Party by making sure its citizens are gainfully employed. And it has done so while overseeing a radical transformation in the make-up of that population.

China has gone from being a country where 71% of its people were employed in agriculture back in 1978 to one where 18% had that occupation in 2017, according to recent World Bank figures.

It has also transformed from a country where just 2.5% of the population were over 60 in 1978 to one where an estimated 25% will exceed that age by 2030.

Nor is the era of change complete: the migration of people from the countryside to the cities still has some way to run if China is to hit the OECD’s average of 5% of the population in agricultural work.

The government also has some work to do if it wants to reach its target of doubling national incomes between 2010 and 2020. That will necessitate growth of 6.1% in 2019 and the same level again in 2020.

On the surface, that should be fairly straightforward given that the economy is on course to hit its 2018 GDP growth targets of around the 6.5% level. Yet 2019 is shaping up to be one of the most difficult years for policymakers for some time. The escalating trade war with the US is making it difficult to stimulate GDP through exports. And its local government debt burden is making it harder to rely on infrastructure investment as a means to maintain the magic growth number above 6%.

Some economists believe that declining numbers in the workforce are giving policymakers more room on unemployment rates and that they could let growth slip a bit further while still keeping the jobless rate contained. After peaking in 2010, for example, the working age population fell below 1 billion for the first time in 2017 to 998.3 million.

However, recent statements from the government have kept the foccus on job creation and a significantly lower growth target is unlikely. In particular, the domestic and international news media have jumped on a policy document about employment rates that was released last week. It contains a number of new measures to try and hold unemployment in check at its current 4.9% level. Chief among them are rebates on the unemployment insurance contributions that companies have to pay. Companies that don’t lay off staff can get back half of the contributions they have made in the previous year. For firms with short-term difficulties but few lay-offs, the refunds could be higher.

The South China Morning Post reckoned the document “offers the first sign of unease within the central government leadership over whether it can fight off unemployment pressure, as the trade war continues to reduce corporate hiring demand, particularly from export manufacturers”.

The government is also well aware of how the trade war is accelerating the shift of low-end manufacturing out of China to neighbouring countries like Vietnam. Recent data indicates that factories began letting people go during the third quarter. As Caixin comments, “in our view, the reason why the ministry [of Human Resources and Social Security] called the situation serious and complicated is not only short-term employment pressures, but rather the interaction between cyclical and structural factors.”

It says a key manifestation of the trend is the “oversupply of low-skilled manual labourers and the undersupply of high-skilled, creative workers”.

The government’s new policy document addresses this as well, including promising smaller companies and start-ups easier access to loans supported by the State Financial Guarantee Fund. Individuals or businesses will be able to apply for up to Rmb150,000 ($21,766) and Rmb3 million in funding respectively.

The government has also announced that it plans to subsidise job training for laid-off workers. In addition, it plans to launch a three-month internship programme in January, expanding its scope from recent college graduates to young people between the ages of 16 and 24. The State Council has said at least one million internships will be on offer next year.

The government normally sets its annual growth target during its December work conference, but announces it at the National People’s Congress in March. In the meantime, the Human Resources and Social Security Ministry has gone into reassurance mode. Addressing a press conference on December 5, deputy director Zhang Yizhen said the government had hit its 2018 job creation target (12 million) by October. She also said the working age population would remain above 800 million until 2035. “Ensuring employment is a priority,” she concluded. “The government will explore ways to ensure high quality and full employment.”

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