Wed. Sep 20th, 2023
    The Challenges of Youth Unemployment and Economic Distress in China

    The Chinese economy has been grappling with a multitude of challenges, including high youth unemployment and economic distress. In the first half of 2023, Chinese consumers spent a staggering 273.9 billion yuan ($37 billion/£30 billion) on lottery tickets, a 50% increase compared to the same period in 2022. This surge in lottery ticket sales reflects the desperation felt by many individuals who find it increasingly difficult to secure employment.

    One of the major contributing factors to the high youth unemployment rate is the regulatory storm that has hit industries such as education, real estate, and technology. These sectors, which were previously popular choices for graduates, have experienced significant job losses. Moreover, the Covid-19 pandemic has further exacerbated this issue, as many students opted to stay in education rather than enter a stagnant job market. This has led to an oversupply of recent graduates searching for limited job opportunities.

    However, the structural problems within the Chinese economy may be even more concerning. The youth unemployment cohort primarily consists of school leavers who are unable to find employment in the service sector. This has resulted in a surplus of unemployed individuals seeking low-skilled jobs such as hospitality workers, security guards, couriers, and nannies. This lack of available low-end jobs is a significant concern, as it affects a politically influential segment of the workforce, while also highlighting the larger issue of stagnant job growth.

    China’s shift away from manufacturing towards a more service-oriented economy has contributed to wage polarization. The decline in manufacturing jobs, coupled with the growth of the informal sector, has led to a rise in inequality and hindered productivity rates. The informal sector now accounts for around 60% of China’s urban workforce, further hindering the country’s ability to become a high-income nation.

    The expansion of China’s informal sector has also had repercussions on tax collection. With personal income tax accounting for only 6% of total tax revenues, local governments are heavily reliant on non-tax sources of income, particularly land sales. However, the government’s efforts to regulate the real estate sector have resulted in a significant decrease in land sale revenues. This has left many provincial governments in dire financial situations, with estimated debts of $23 trillion and numerous municipalities at risk of default.

    In light of these financial constraints, local governments have been forced to reduce welfare payments, causing discontent among the population, particularly among pensioners. This move is problematic, given China’s rapidly aging population and weak social safety net. Reducing benefits not only hurts consumption but also weakens demand, employment, and public revenues.

    The Chinese economy is currently facing a dangerous cycle, where weak demand leads to lower employment rates and reduced public revenue. Without a free market system in place, the government’s ability to support jobs and restore economic confidence becomes compromised.

    – “Lottery ticket sales soar as China’s job market falters” by Kerry Allen, BBC News
    – “China Economic Watch: The Unemployment Challenge” by MacroPolo