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Chinese workers line up on the main boulevard of a manufacturing facility for the Taiwanese manufacturer EUPA. Image by John Seb Barber available at under CC license.

10:16 am | October 13, 2020

China’s Unemployment Challenge

China now talks about a “dual-cycle” of development that means less dependence on foreign markets and greater domestic demand. Only by stabilizing employment can the country effectively develop and sustain demand. But current rates of growth suggest stabilizing employment will be a tough ask.

By Shi Yuwen

2020 is the year China has defined as its target year for comprehensively achieving what it calls a "moderately prosperous society," or xiaokang shehui. One of the key measures defined by the Chinese government is the doubling of per capita GDP against 2010 levels. In light of the COVID-19 pandemic, some have suggested that the government is likely to insist on GDP growth targets to ensure the country reaches what the leadership considers an important political goal. The reality, however, is that China’s economic situation has come up against some new challenges.

Key Points:

Facing tremendous economic challenges posed by tensions with the US, and by the Covid-19 pandemic, the Chinese leadership is pursuing "a new dual-cycle pattern of development” -- with the domestic market as the economy's mainstay and the domestic and international markets complementing one another.
However, China’s domestic demand is highly unbalanced. Around one billion Chinese have low incomes and extremely low level of consumption. Once they have, if capable, purchased property and saved up for education costs, healthcare and other essentials, they have quite limited resources remaining even for basics.
Since the late 1990s, infrastructure has become a regular tool for the Chinese government in expanding the country's aggregate demand. Infrastructure investment in China accounted for as much as 45 percent of GDP, while private consumption in China in 2019 accounted for just 38.8 percent of GDP, less than half of the US level.
Currently, China’s solution for the new crisis remains to expand infrastructure investment in 2020, with special focus on the “new infrastructure”: 5G, AI, the industrial internet of things and so on. However, as these sectors seek highly educated talent, they will not be able to provide sufficient jobs to close the yawning employment gap.

External Shocks and Changing Directions

GDP data released by the National Bureau of Statistics for the first quarter of 2020 showed that China’s GDP fell 6.8 percent year-on-year during the first quarter. This is the first time quarterly GDP growth in China has been negative since the country adopted the System of National Accounts (SNA) in 1993.

While China’s GDP growth rate rebounded to 3.2 percent during the second quarter, the growth rate in the first half of the year remained at minus 1.6 percent. Supply, moreover, rebounded far more than demand. In fact, the rebound in second quarter GDP was due entirely to the introduction of large-scale tax cuts of up to 2.5 trillion yuan, the demand that financial institutions make 1.5 trillion yuan in interest concessions to support businesses, and policies such as government-issued consumer coupons to stimulate consumption.

Should China's economic growth rate in the second half of this year rebound to 6 percent, the annual growth rate would reach approximately 2.5 percent. With a 5 percent rebound in the second half, the annual growth rate would be about 2 percent. Any rate of growth below 5 percent in the second half would mean less than 2 percent annual growth. In any case, this will be China’s worst economic performance since the start of reform and opening.

As China's power has grown, the geopolitical and ideological conflict between China and the United States has become increasingly pronounced. Since the outbreak of the US-China trade war in 2018, and following China’s response to protests in Hong Kong, including the implementation of a new national security law, relations between China and the West have grown colder. Over the past two years, tensions between China and the US have evolved from a focus on trade, to conflict over a range of issues, from technology and cybersecurity (as seen with the case of Huawei) to allegations of intellectual property theft (as seen in the forced closure of the Chinese consulate in Houston and China’s closure in response of the US consulate in Chengdu). 

The United States has urged countries in the West, as well as the European Union, to follow its lead in resisting and isolating China – on Huawei and other issues. At the same time, the global COVID-19 pandemic has not yet reached a turning point and the virus continues to disrupt global trade and travel. These external factors have led Chinese officials to consider macro policy adjustments.

In a speech on June 18 to the 12th Lujiazui Forum, a gathering of government and business leaders from around the world held in Shanghai, Chinese Vice Premier Liu He spoke for the first time about  "a new dual-cycle pattern of development,” with the domestic market as the mainstay of the economy and the domestic and international markets complementing one another. Some observers misinterpreted Liu’s words about the "domestic cycle serving as the mainstay" (一个以国内循环为主) as meaning that China would return to a relatively closed state. As a result, Chinese policymakers spent much of the second half of July actively trying to explain the meaning of this “dual cycle” (双循环).  

As China's power has grown, the geopolitical and ideological conflict between China and the United States has become increasingly pronounced.

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Chinese Vice Premier Liu He. Image by US Senate Committee on Finance available at Wikimedia Commons under CC license.

On July 21, General Secretary Xi Jinping presided over a forum attended by top Chinese entrepreneurs and delivered a speech, in which he recognized that the “domestic cycle” would be mainstay of the two, while emphasizing that this did not mean China would close its doors and operate in a closed environment. Rather, Xi said, the policy was about making better use of the potential of domestic demand to connect both domestic and international markets – the idea being to make better use of both markets to achieve stronger and more sustainable development.

At the policy level, the so-called dual-cycle approach has several main levels of intention as outlined by policymakers. The first level of intention is to send a strong signal to the United States that China has sufficient confidence in sustaining its economy even without a strong US-China relationship, the hope being that the US will avoid the strategic miscalculation of assuming it can pressure China into making concessions.

The second intention is to send a signal to large domestic state-owned enterprises, technology companies and talent in science and technology that the government is committed to “the great domestic cycle,” meaning that it will further strengthen China’s development and control of core technologies.

The third intention with the dual-cycle approach is to expand aggregate domestic demand in China. Policymakers in China reason that the cause of the country’s longstanding "external cycle" has been a clear lack of domestic demand, so that a large volume of goods produced domestically cannot be consumed in China. Therefore, it is important to gradually raise the income level of low-income earners and thereby expand domestic consumption so that more goods can be sold directly within the country.

Finally, the intention is to continue and even expand the process of opening up to the outside world against the backdrop of this dual-cycle approach, so that foreign investors will continue to invest in China and make it an integral part of their industrial chains, while more goods will also be sold in China's domestic market, in this way reducing the geopolitical risks that come with cross-border trade.

Among these four objectives, expanding aggregate domestic demand is central. And the key to ensuring domestic consumption is securing employment. In this article, the focus will be on the situation facing domestic demand and employment in China in light of the COVID-19 pandemic.

Domestic Demand in China

According to the National Bureau of Statistics (NBS), China's total retail sales of consumer goods in 2019 reached 41.26 trillion yuan, or around 5.92 trillion US dollars. Japan, the world's third-largest GDP in 2019, had a total GDP of 5.08 trillion US dollars, which means that consumption in China has now exceeded the total economic output of the world's third-largest economy, and is now approaching the combined GDPs of Germany and the UK.

Although overall domestic demand in China is huge, consumption per capita is just over 4,000 US dollars. Correspondingly, per capita disposable income remains low, at 30,733 yuan, or 4,461 US dollars. China’s median per capita disposable income is 26,523 yuan, or 3,850 US dollars. There is a marked disparity between the income of urban and rural residents. While the mean disposable income of urban residents is 39,200 yuan, the mean disposable income of rural residents is just 14,000 yuan. The per capita disposable income of rural residents is just 37.8 percent that of urban residents.

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The total number of migrant workers – those from rural areas working away from their place of local registration, usually in larger cities – reached 290.77 million in 2019, an increase of 2.41 million over the previous year, according to the 2019 Migrant Workers Monitoring Survey Report released in April by the National Bureau of Statistics. In China, the majority of industrial workers are migrant workers, who are excluded from many social services due to the country’s household registration (or “hukou”) system. In 2019, the average monthly income of migrant workers in China was 3,962 yuan, or about 590 US dollars, a wage level still far from that of developed countries, but significantly higher than that of other emerging countries in Southeast Asia as well as India.

In addition to earning low wages, migrant workers often have to labor for long hours with little job security and meager social benefits. The NBS survey does not include data on working hours, wage arrears, the ratio of workers under formal labor contracts, or social insurance coverage. But they do tell us that by the end of 2019, just 86.16 million migrant workers were covered by work-related injury insurance. In sum, as the majority of Chinas working population have low-incomes and lack social security, it remains a huge challenge to stimulate consumption demand in the society as a whole.

Property, Property, Property

The scale of Chinese domestic demand is huge, but it is also unbalanced. Chinese tend to have a high level of savings, but also a high debt to assets ratio. This is because the chief reason Chinese save money is to purchase residential property, and mortgages are also their chief source of debt. Generally speaking, a high proportion of savings in China is spent on non-tradable goods including property, education fees and medical services. These expenses compress the level of consumption of tradable goods.

Therefore, while the scale of domestic demand in China is huge, the country still faces a combination problem consisting of oversupply and insufficient aggregate demand – meaning that demand is not sufficient to fulfill the needs of the population for job creation and economic growth.

According to China's Central Bank, total household deposits in China stood at 82.14 trillion dollars at the end of 2019, while the balance of loans of Chinese households was 55.3 trillion dollars, including 29.8 trillion in mortgages, accounting for 53.9 percent of total household loans. For decades, real estate has remained an important pillar in stabilizing China's aggregate demand. Although central and local governments have repeatedly emphasized that "housing should not be subject to speculation", investment in real estate development in the first half of 2020 increased by 1.6 percent year-on-year, and residential investment increased by 2.6 percent, both at levels significantly higher than the overall economic growth rate of minus 1.6 percent. Real estate remains an important factor in stabilizing economic growth.

Both urban land prices and housing prices are pushed high as a result of China's assignment system of land use rights and its land transfer system, which empowers local governments to monopolize land supply and to develop at high margins in order to generate local revenue. According to 2019 statistics, most of the major cities in China have a ratio above 10 of housing prices to annual income, meaning that the average earner would need ten year of total income (not factoring in other expenses) in order to purchase an apartment. In the city of Shenzhen, across the border from Hong Kong, the ratio of housing prices to annual income is above 35, while in the capital of Beijing it is close to 25.

In addition to home purchases, another major expense for Chinese residents is the purchase of a car. The rate of private car ownership in China is still far below that in developed countries as overall household income is comparatively low. In 2019, there were 226.35 million privately owned vehicles in China (including trucks), of which 137.01 million were private sedans. When you consider that there are around 450 million Chinese households, this means roughly 30 percent of households have private cars. In fact, because many households have more than one car, the actual rate of household automobile ownership is even lower.

In recent years, growth has begun to slow in China's auto industry. Like property, however, the auto industry concerns a huge industrial chain covering mining, steel, machining, assembly, petrochemicals and energy. It is therefore an important pillar industry in China. Nearly all of China's major industrial centers are also important automobile production bases.

Against the backdrop of high savings and high debt, the daily consumption level of Chinese is not high. Aside from its middle-income population, now amounting to roughly 400 million people, China has around one billion people with low incomes, who do not own private cars and have never been on an airplane. The overall consumption level of this group is extremely low. Once they have, if capable, purchased property and saved up for education costs, healthcare and other essentials, they have quite limited resources remaining even for basics like food and clothing.

Against the backdrop of high savings and high debt, the daily consumption level of Chinese is not high.


China is the world's largest industrial nation, and in production of such goods as clothing, and electronic equipment it has long led the world. While China has a domestic market of 1.4 billion people, its production of goods (especially those for daily consumption) far exceeds the real disposable income of the population. Thus, for the foreseeable future, China will have to continue to export goods on a large scale to overseas markets, otherwise it will not be able to absorb its huge capacity as “factory to the world.”

Infrastructure and Demand

Insufficient aggregate demand has always been a problem in China. In the late 1990s, when the Asian Financial Crisis struck, the Chinese government launched a large-scale program of infrastructure construction to hedge against the impact of the crisis. Since then, infrastructure has become a regular tool for the government in expanding the country's aggregate demand. Infrastructure investment in China accounted for as much as 45 percent of GDP. Infrastructure capital stocks totaled more than 100 trillion yuan, surpassing China's total GDP, while private consumption in China in 2019 accounted for just 38.8 percent of GDP. China has the highest rate of global investment in the world. Ultimately, an emphasis over the long-term on investment over consumption drives overcapacity. An additional problem is the structural imbalance between West and East regions. Infrastructure stock per capita in Western China is higher than that in eastern and central China, although the total GDP and per capita GDP in China’s western regions are much lower than the coastal provinces.

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However, facing the economic challenges posed by the Covid-19 pandemic, the solution prescribed by the Chinese government is to expand infrastructure investment in 2020, with special bonds from local governments expected to increase by 1.6 trillion yuan over 2019. This investment will support the construction of so-called “new infrastructure,” and major projects in areas like transportation and flood control, as well as increasing funds for national railroad construction to the tune of 100 billion yuan.

The concept of "new infrastructure" was first mentioned in December 2018 at that year’s Central Economic Work Conference, focusing on the expansion of facilities for the development of 5G, artificial intelligence, and the industrial internet of things. During a meeting of the Politburo Standing Committee meeting on March 4, 2020, the expansion of “big data centers” was added to the notion of “new infrastructure.”

The so-called process of “new infrastructure construction” (新型基础设施建设) is designated as a key area of investment, mainly including the construction of 5G base stations, ultra-high voltage (UVH) transmission, high-speed inter-city railway and urban railway systems, charging stations for new energy vehicles, large data centers, artificial intelligence, and the industrial internet of things.

So-called "new infrastructure” involves three core aspects. The first focusses on key infrastructure, including 5G and UVH transmission. China wants to maintain its leadership in the field of 5G, which drives the growth of related hardware and software industries, and stimulate the growth of related industries such as short video, live broadcasting, virtual reality (VR) and augmented reality (AR). The second aspect is investment in so-called “new green transportation” (新型绿色交通), which focusses on railways and new energy vehicles. The third aspect relates to data and digitalization, including big data, artificial intelligence and the industrial internet of things, applications that can improve industrial and commercial performance.

Another result of China’s large population base is the massive development of China’s internet market. China’s 1.4 billion population, and the common use of Chinese characters, make the country a natural base for internet software serving predominantly domestic Chinese users who form a huge user base. This is something not possible in Europe, for example, with its broad linguistic diversity. Internet applications in other countries would need to cover almost the entire English-speaking population of the world to gain access to a user base as large as that of China. Owing to the sheer size of China’s user base, even a small percentage of total users commercial engaged by a given product can give it tremendous market value. The internet and other industries have continued to expand in China, even as there is a great deal of lingering uncertainty about the development of the global pandemic. Even in the face of the pandemic, and in some cases because of it, there has been significant growth in industries such as cloud computing, online offices, remote collaboration, and the digital B2B service industry, which should become an important new segment of the Chinese economy with reliance on AI and big data.

Released in July 2020, the White Paper on the China’s Digital Economy Development and Employment, released by the China Academy of Information and Communications Technology (CAICT), an institute under the Ministry of Industry and Information Technology (MIIT), shows that the scale of China's digital economy reached 35.8 trillion yuan in 2019, accounting for 36.2 percent of GDP. The G20 National Digital Economy Development Study (2018), also released by CAICT, reports that the digital economy in the United States reached 11.5 trillion dollars in 2018 – far larger than that of China. In major developed countries like the US, Japan and Germany, the digital economy accounts already for around 60 percent of total GDP, meaning that China’s digital economy lags far behind that of these countries as a proportion of the overall economy.

One challenge facing the rise of new infrastructure in China is a shortage of necessary talent. For Chinese companies, there are four areas in which talent is generally scarce: system security architects, cutting-edge technology researchers, senior security consultants, and versatile talent and senior management personnel.

At the end of July, Ren Zhengfei, the founder of the Chinese tech giant Huawei, visited four universities in the Yangtze River Delta to announce his "Youth Genius” program, which offers annual salaries of up to two million yuan (about 250,000 euro) to top-performing students in various areas. His visits drew a great deal of public attention. In mid-August, the Chinese search engine Baidu announced the launch of 2021 recruitment program, saying it hoped to hire for 40 percent more positions than this year. For the first time, Baidu launched a management trainee program, with CEO Robin Li and other top executives personally selecting and training candidates.

An Industrial Chain Crisis

China's manufacturing industry faces three major challenges today. First, especially in the areas of advanced manufacturing, there is increasing concern and suspicion towards China among Western countries. Second, China’s dominance in traditional manufacturing is being challenged by economies in Southeast Asia, which are increasingly attracting manufacturers away from China. The third challenge is that manufacturing costs in China are rising across the board, making it less competitive as a manufacturing destination. As some economists have pointed out, perhaps a more distressing sign than China’s 6.8 drop in GDP during the first quarter of 2020 is the continued movement of the industrial chain away from China.

Constrained both domestically and internationally, China has introduced a series of policies aimed at adjusting the industrial chain. On August 4, the State Council issued a policy called "Promoting the High-Quality Development of the Integrated Circuit Industry and Software Industry In the New Period,” which offered a 10-year period of corporate income tax exemption to enterprises or projects that use an integrated circuit (IC) line width of 28 nanometers or less, and with an operating period of more than 15 years. ICs are at the heart of the high-end manufacturing industry, and China has been forced by external pressures, not least technology confrontation with the US, to take the road to independence.

Owing to US sanctions against the company, tech giant Huawei now says that it is facing a severe situation, lacking the processor chips it needs to manufacture its smartphones. At a business conference in August, the head of Huawei’s consumer business unit, Richard Yu, said that “because there is no Chinese chip manufacturing industry to support, Huawei has its hands and feet tied under the sanctions.”

In response to US sanctions, Huawei has launched a project called “Nanniwan" that aims to develop tech products completely free of US technology. The project focusses on hardware products, such as smart TVs and certain laptops, that do not use US components. In fact, it is nearly impossible to find in semiconductor manufacturing any company that can fully meet the needs of clients throughout the sector.

Given the US sanctions, Huawei's Kirin chip can no longer be contracted for production by Taiwan Semiconductor Manufacturing Company (TSMC), one of the world’s largest contracted manufacturers of semiconductors. TMSC was able to deliver just under nine million Kirin 9000 chips to Huawei before the sanctions kicked in – meaning that chip supplies ran out even before products using the chips could be put on the market. Huawei faces a supply crisis for nearly all of its Kirin line of chips, which relies entirely on TMSC. If production of these flagship circuits comes to a halt, this would mean Huawei could produce only low-end mobile phones, and would be unable to compete with Apple and Samsung.

Emergencies and disruptions in the global supply chain in the midst of the Covid-19 pandemic and US-China trade tensions have had a profound impact on China's manufacturing enterprises. Imports and exports account for about 50 percent of the country’s economy, and this includes a large number of intermediate products, the bulk of which come from the electronics, machinery and chemical industries.

Employment in China

After the outbreak of the epidemic, Chinese leaders realized that the economic situation in 2020 would be extremely severe. Its core plan for dealing with the crisis, known as the “Six Guarantees,” sought to safeguard and maintain 1) employment, 2) basic livelihood, 3) market players, 4) food and energy security, 5) the stability of the supply chain and 6) the basic operating mechanisms of the system.

The so-called “Six Guarantees” can be seen as a rather rare admission on the part of the leadership that employment and people's livelihoods are under great pressure under the impact of the epidemic, that a substantial number of market players are facing the risk of production suspension or even shutdowns, that there could be serious adverse effects on industry supply chains, that many local areas face serious downward pressure, and that tight finances might even affect administrative functions at the grassroots level.

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The “Six Guarantees” have been a primary focus in China’s state media in 2020. Here the headline reads: “How to Implement the ‘Six Guarantees’? Here is What General Secretary Xi Jinping Has Planned.”

As China's social security system is still poorly developed, loss of employment can mean a sharp drop in income for Chinese and lead to vulnerability for the whole family unit. The weakness of the social security system is the chief reason why the government has said that the core purpose of "preserving market players" is to "preserve employment." Private enterprises, and small and medium-sized enterprises, account for more than 90 percent of jobs in China, and the continued operation of these market players is crucial to maintaining employment. Total employment by private enterprises in China’s cities reached 145.67 million by December 1, 2019.

But official government survey results suggest that the unemployment rate is significantly higher in 2020 due to COVID-19. According to China’s Caijing magazine, surveyed employment rates from February to May this year were 6.2 percent, 5.9 percent, 6.0 percent and 5.9 percent respectively. The overall rate for this period is about one percentage point higher than the 5.2 percent recorded for December 2019, which is equivalent to a 15-20 percent increase in the total number of unemployed people.

The main reasons for the rise in the unemployment rate include decreasing employment in the service sector and slower employment as large enterprises due to declines in foreign trade. Particularly noteworthy is the fact that the actual employment situation in China may be more severe than the official figures suggest due to the general inaccuracy of unemployment statistics in the country. The vast majority of industrial workers in China are migrant workers, those who have their official registration in rural areas under the so-called household registration system. They hold shares in collectively-held land in their rural communities but they no longer farm the land. Their main source of income comes instead from employment in urban areas, in manufacturing or service jobs. During economic downturns, migrant workers may experience precipitous drops in income. Existing unemployment statistics, however, cannot fully account for this population.

The actual employment situation in China may be more severe than the official figures suggest due to the general inaccuracy of unemployment statistics in the country.


Declining employment in the service sector is a major factor contributing to China's worsening overall employment picture. According to statistics for the first half of 2020, China's secondary sector (manufacturing) has recovered better than the tertiary sector (services) as a whole. The tertiary sector is better able to absorb employment than the secondary sector, which means the downturn in services has put greater pressure on China's job market. During the first half of the year, total retail sales of consumer goods fell by 11.4 percent, and the tourism and hotel sectors were badly hit, with domestic tourism revenue equivalent to just 31.2 percent of last year’s numbers.

China's foreign trade was also badly hit during the first half of the year, but as China has taken the lead in resumption of work and production globally, and as the epidemic has eased in Europe, China's foreign trade has made a better than expected recovery. Total imports and exports are down just 3.2 percent year-on-year, imports are down just 3.3 percent and exports are down 3 percent. As a whole, employment at foreign trade factories has recovered.

Overall, China's employment policy focuses on stabilizing employment among key groups, encouraging flexible employment and proactively expanding investment. In China, the employment of university students and young people is considered an urgent political task – and the employment season this year has been China’s most difficult in the past three decades. In China's current economic system, the overall employment absorption capacity of the government, state-owned enterprises and other government-affiliated institutions is limited, and the employment of university students relies in large part on flexible employment as well as deferred employment (meaning further education, including graduate school).

In 2020, China’s Ministry of Education for the first time ever listed various forms of "gig work” as employment, including “internet marketers, freelance writers, public blog operators and e-sports workers.” This is not just a change in statistical indicators, but over the medium to long term also means policymakers can be expected, against the backdrop of a low employment situation, to offer further support and encouragement to freelance and flexible employment. The development of China's internet economy has also expanded the terrain of flexible employment. According to the National Bureau of Statistics, the unemployment rate in June 2020 for those between 25 and 29 was 5.2 percent, 0.5 percentage points lower than the average unemployment rate.

Many state-owned enterprises have lowered their employment targets this year, and some companies directly informed schools that they can recruit just 60 percent of total recruitment numbers for 2019. The majority of small and medium-sized enterprises (SMEs) have been implementing layoffs and pay cuts in 2020. China’s pool of graduates from ordinary colleges and universities this year is 8.74 million, and finding employment positions for these fresh graduates will be a major challenge. Back in June, the School of Journalism and Communication at the South China University of Technology released a notice to its alumni network asking for “attention and support” in addressing its employment shortfalls. The notice said that as of May 25, 2020, the school’s undergraduate employment rate was just 35.17 percent, with just a small portion of these under formal employment contracts, while the employment rate among matriculating graduate students was 48.53 percent.

In addition to supporting employment opportunities for youth and college graduates, Chinese policymakers have also supported the expansion of flexible employment. For example, Guangdong Province has introduced measures to support flexible employment for college graduates, and those who struggle to find employment within two years of graduation. Under these measures, those registering as employed and contributing to social insurance are entitled to social insurance subsidies for flexible employment.

During the first half of this year, a so-called "street stall economy" craze swept across China, in which people were encouraged to start small businesses and pursue alternative careers. On August 25, the Ministry of Human Resources and Social Security (MHRSS) predicted in a report that as the new economy experienced explosive development, the demand for online delivery workers would also rise rapidly, reaching around 30 million over the next five years.

Employment for university graduates, however, relies primarily on the tertiary sector, and new jobs must be created to fulfill job demand. According to a national survey of employment among college graduates conducted by Peking University in 2017, 75 percent of college graduates (including undergraduates, postgraduates, and those with specialized degrees) are employed in the tertiary sector. Small and medium-sized enterprises provide the bulk of jobs, but these companies have been hit  hardest by the pandemic. According to the survey, “SMEs (including individual businesses) account for more than 90 percent of all market players, contributing more than 80 percent of the country’s employment, 70 percent patent registrations, more than 60 percent of GDP, and more than 50 percent of tax revenue.”

A separate survey report jointly released by Tsinghua University and Peking University, studied 995 small and medium-sized enterprises, and found that two-thirds could sustain operations for just two months given their current cash flow levels. Data from the Bureau of Statistics shows that the rate of resumption of production among SMEs is much lower than that at large-scale enterprises. At the end of February this year, the rate of return to work at SMEs was just 32.8 percent. By the end of March that rate had risen, but still was just 60 percent. As SMEs are the main source of employment in China, pressures on SMEs are likely to have a serious impact on existing jobs.

One of China’s answers to this challenge is to ramp up investment. As discussed previously, one key area of expansion is “new infrastructure,” and the hope is that these areas might absorb some industrial workers, plugging the employment gap created by declines in manufacturing and service industry jobs. The job posting platform Zhaopin recently released its "2020 New Infrastructure Industry Talent Development Report," which estimated that by the end of this year there would be talent gap in core technology related jobs for new infrastructure of 4.17 million. However, as these sectors are focusing on highly educated top-notch talents, they will not be able to provide sufficient jobs to close the newly increased employment gap.

Employment is the core issue at play in China’s dual-cycle pattern of development. Only by stabilizing the employment picture can China effectively stabilize the demand created by low and middle-income groups, thereby allowing domestic demand to better absorb domestic supply. But even as it stabilizes employment, China must steadily push enterprises to engage in technological innovation and increase labor productivity – in this way ensuring, through technological upgrading and improvements in efficiency, that per unit production costs can remain stable or even fall against the wages of industrial workers. It stands to reason that if the prices of goods can remain within reach, Chinese consumers will be encouraged to buy.

For the foreseeable future, economic policy in China will continue to focus on stabilizing employment. But achieving full employment will be an immense challenge given the reality of low growth. To stabilize employment, China would need a GDP growth rate of around 5 percent for 2020. At the moment, this is something very difficult to achieve.

October 13, 2020
Shi Yuwen

Shi Yuwen is a former macroeconomic analyst based in the city of Hangzhou.