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The author of ‘Red Flags: Why Xi’s China is in Jeopardy’ is a research associate at the University of Oxford’s China Centre.
Despite having one of the world’s fastest ageing populations and a decline in fertility rates, China is currently experiencing record-high youth unemployment. In June, the youth unemployment rate reached an all-time high of 21.3%, with speculation that the actual figure may be even higher. Addressing this issue and finding employment opportunities for young people is crucial, as youth unemployment not only negatively impacts the economy but also has social repercussions.
Since 2021, a social phenomenon known as ‘tang ping’ or “lying flat” has emerged among Chinese youth. It reflects disillusionment and the willingness to settle for whatever is necessary in the face of a weak economy, limited social mobility, and a scarcity of good job prospects. Another term, ‘bai lan’ or “let it rot,” has gained popularity, signifying a deeper pessimism and a lack of motivation to strive for better.
Due to a lack of quality job opportunities and intense competition in a struggling economy, an increasing number of young individuals have become financially dependent on their parents and are essentially full-time children who work from home.
However, the greatest concern for unemployed youth is the risk of “hysteresis,” which refers to the difficulty of reentering the formal labor market as skills and experience deteriorate the longer they remain unemployed.
Despite potential variations in how China calculates its youth unemployment rate compared to international standards, a concerning pattern has emerged over the past five years. Each year, there is a rise in unemployment rates during the summer when graduates enter the job market, followed by a slight decline in the second half of the year. However, overall unemployment rates have steadily increased year after year.
This issue in China is particularly critical for three reasons. Firstly, young people contribute significantly to urban spending, accounting for approximately one-fifth of total spending and over three-fifths of luxury goods expenditure, according to a report by Goldman Sachs. Although weak consumption in China is influenced by various factors, rising youth unemployment plays a role.
Secondly, there has been a notable shift in the occupational structure, with a rise in low-paying, low-skilled jobs in the informal sector at the expense of higher-paying, high-skilled jobs in manufacturing and construction. Stanford University professor Scott Rozelle highlights that 15 years ago, the ratio of informal to formal sector jobs was 40:60, but it has since reversed. This presents a particular challenge for young workers who are more likely to be engaged in low-paying sectors and the gig economy.
Thirdly, several mismatches exacerbate the problem. There is a mismatch between the skills possessed by many graduates and the skills demanded by employers, especially in fields like engineering, finance, and manufacturing. Job and salary expectations, particularly among highly educated graduates, are often unrealistic. Additionally, there is a lack of aggregate demand, reflecting the government’s focus on supply-side policies and the growing flaws in China’s economic development model, which heavily relies on state enterprises.
With an estimated 11-12 million graduates entering the job market this summer, experts and analysts closely monitor the unemployment figures and anticipate economic decisions from the Politburo. Calls for stimulus measures have grown louder, particularly after weak second-quarter economic performance. However, implementing traditional remedies such as credit creation, rural revitalization, and infrastructure programs has been challenging due to financial constraints and debt issues faced by local governments responsible for their implementation. Chinese economists are increasingly urging the government to adopt measures that boost consumption.
Resolving youth unemployment in China may ultimately require a fundamental transformation of the national development model. Expanding and opening up service industries, embracing income redistribution and social security measures, implementing education and tax reforms, and shifting priorities back to the private sector are essential steps that necessitate a significant political transformation.
The Communist Youth League previously encouraged young Chinese individuals to engage in agricultural work, but the younger generation seems to desire a different solution.
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