President Xi Jinping's dream of turning China into a high-income country is undermined by a bleak economic outlook. Photo: GONZALO FUENTES/Reuters < p>Today's job applicants in China fall into one of three categories, says Julia Zhu, director of recruiting at Robert Walters China.
Some of them have rare skills that are used in high demand in the technology or green energy sectors and are capable of generating high wages. But the second group feels helpless. Their skills do not match the needs of the economy. «There are things they can't control, and the market is falling,» Zhu says.
«There's another part that just gave up,» she adds. “They just stay at home, stick around and admit that they will have such a year off within two or three years.”
Their outlook is in stark contrast to President Xi Jinping’s “China dream” of making China a country with a high level of income. Youth unemployment hit a record 21% in June, China's growth model has faltered, and economists warn the country is teetering on the brink of a debt crisis.
“This economic downturn is unprecedented in the last 40 years,” says Lance Gore, senior fellow at the East Asia Institute at the National University of Singapore.
Instead of achieving the 5% GDP growth rate that Xi is targeting China is starting to look more and more like Japan in the 1990s. Then the bursting of the asset price bubble triggered Japan's «lost decade», leading to a 30-year period of stagnation. Economic growth has fallen from 4.5% year-on-year in the 1980s to 1% since then.
Economists do not expect economic growth in China to fall that low. Steven Roach, senior fellow at Yale Law School's Paul Tsai China Center, says the 3% chance is more likely. But the end result for China will be worse.
China is under this pressure at a much lower per capita income than Japan, Roach says.
Although Japan's economy declined, it remained a wealthy country. China may be the second largest economy in the world, but its GDP per capita in 2022 was just $12,756 (£10,130), according to Capital Economics. That's about a sixth of that in the US and barely above the global average.
If stagnation occurs now, China will be stuck in a middle income trap. Xi Jinping's «Chinese dream» will die.
Demographers have long warned that the country could grow old before it gets rich.
According to Capital Economics, the country will have 26 million fewer workers by 2030 than it did 15 years ago. By 2050, the workforce will be reduced by almost a quarter — or 239 million people.
“In some cities, 20 years ago, there was a situation where there were almost the same number of people receiving pensions, since there were payments in pension system,” says William Hurst, professor and associate director of the Center for Geopolitics at the University of Cambridge.
But millions of graduates will now be unemployed before they get old. .
It seems incredible that China could suffer from too few workers and too few jobs at the same time, but the deeper problems in its economy mean that this paradox is a reality.
Chinese workers are completely out of step with the needs of the economy. “There are too many low-skilled workers, too many professionally skilled workers, and too few middle-level people,” Hurst says.
Young people in China are not only unemployed, but also underemployed,” says Zak Dychtwald. Founder of Young China Group, a Shanghai-based consulting company that advises businesses on understanding young people in China.
“I have heard many stories of young people with college degrees and doctoral degrees taking teaching jobs in second-world cities. , third and fourth levels, where they were paid 2,000 yuan — less than $300 a month, well below the market price. ”, says Duchtwald.
The number of college graduates has just hit a record high of 12 million, up from one million in 1999. But the country has just emerged from a three-year lockdown. «Many businesses have gone bankrupt,» Gore says.
But the roots of China's economic troubles began much earlier than the pandemic, Hurst says. «What we are seeing now is an important moment in a much wider and longer arc that actually began in 2008.»
In the approximately 15 years leading up to the financial crisis, China had an extremely successful economic model. this was based on foreign direct investment, exports, manufacturing, and large-scale migration from the countryside to the cities. Then came the global financial crisis. The model broke.
When the Western financial system collapsed, China's exports plummeted. “They never recovered. All kinds of sectors were just devastated,” says Hurst.
After that, the model evolved into a series of ad-hoc short-term measures based on massive government incentives,” Hurst says. “They spent a lot of money on infrastructure, government projects, forcing banks to issue huge loans for all kinds of purposes, which were not really very productive or profitable.
“This sets off a spiral of debt bubbles and asset price bubbles , into the trap of which we fell.
Development has become completely out of step with the needs of the country. China has become famous for its ghost towns — akin to Japanese bridges to nowhere.
“If you take a train across the country, you will see suddenly huge apartment towers in the middle of the countryside that are just completely empty. And not one or two of them, but dozens,” says Hurst.
The real estate sector is now in a protracted downturn that began with the collapse of Evergrande in 2021 and will intensify as another major developer, Country Garden, teeters on the brink of default. The bulk of Chinese household wealth is concentrated in real estate, which means that falling house prices have become a serious drag on consumer spending.
But this may be the least of China's problems. The country is facing a potential debt crisis, Hurst says. In the non-financial sector, the share of debt in China's GDP has risen from 200% to 300% during Xi Jinping's 12 years in power.
The level of government debt, corporate debt and household debt in China is incredibly high. “My intuition is that debt levels in China now are at least comparable, if not higher, on all three dimensions than in Japan in the 1980s,” Hurst says. And the old sources of income have been exhausted.
“Many local governments cannot even pay their payroll bills. They can barely keep functioning,” says Gore of the University of Singapore.
While the government will almost certainly intervene to prevent a large-scale financial crisis, it will only create more problems for itself in the future — unless economic growth picks up, Hurst says.
This looks increasingly unlikely. “As we know from Japan's experience, when labor intensity starts to decline, the only way to maintain growth is to increase productivity growth,” says Roach.
However, productivity growth has slowed down. By 2025, output per worker will grow by just 2.8% year-on-year, Capital Economics predicts. Back in 2010, the growth rate was 10.9%.
Xi Jinping's message to young people trying to find work in China was to «eat bitterness,» a phrase championed during the Cultural Revolution, which means to take into account the difficulties. and suffering is a virtue.
But the new generation just wants to get out of the rat race. “For their parents, it was ‘eat bitter’ at all costs. Work-life balance is a joke for the older generation in China,” Duchtwald says.
More and more young people in China are now moving away from the hyper-competitive, so-called first-tier job markets. cities like Beijing and Shanghai.
“Masses of young people are moving to cities like Chengdu, Wuhan, Changsha,” Dychtwald adds.
Their wages are being cut. Graduate salaries in Beijing and Shanghai are 40% above average, says Robert Walters' Zhu.
But they don't care. «Even if they earn less, it's cheaper for them,» Duchtwald says.
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