CHINA´S LOST GENERATION / THE WALL STREET JOURNAL

China’s Lost Generation

Xi Jinping has a major youth unemployment problem on his hands

By Nathaniel Taplin

In China, it is estimated that over 11 million new university graduates are entering a shaky job market. PHOTO: YU FANGPING / CFOTO/ZUMA PRESS

In October 2022, Xi Jinping, on the cusp of securing his precedent-breaking third term atop China’s Communist Party, wrapped up his keynote speech with an exhortation to the country’s young people: Seize the historic opportunity before you.

At that point, unemployment was already nearly 18% for the 16-to-24-year-old set.

Now it is above 20%, and probably set to move even higher this summer, as a record cohort of new university graduates estimated at over 11 million crash into a shaky job market. 

Many of them will struggle to secure good offers—an echo of the post-2008 struggles of American workers that helped sharpen U.S. political divisions.

China today and America in 2009 are two very different places, but there are some striking similarities. 

China, like the postcrisis U.S., is dealing with a real-estate bust that will probably depress economic growth and household wealth for years. 

The government, under pressure from rising debt, is taking a prudent approach to stimulating the economy—a fact that might help contain debt levels, but will also weigh on growth.

In contrast to the inflationary boom in the rest of the world, Chinese prices are barely rising at all, and they are falling in the manufacturing sector—a sign that demand may be too weak to push companies to invest and grow. 

Tighter regulations on key industries—finance in the post-2008 U.S., tech and education in China—may help contain systemic risks but also could strand a generation of ambitious young people who trained themselves to enter those industries.

The real rate of unemployment among Chinese young people is probably different in important ways from the dire picture painted by official statistics. 

China’s official unemployment rate includes those who were looking for work at any time in the past three months, noted Renmin University professor Zeng Xiangquan in a recent interview with local financial paper the Economic Observer. 

The U.S. includes only those who were searching in the past four weeks.

According to Mr. Zeng, unemployment data sourced from the long-running Peking University China Family Panel Studies series, and calculated according to the international four-week standard, results in only a 6.8% youth unemployment rate for 2020, for example. 

Monthly average youth unemployment in 2020 was more than 14%, according to official National Bureau of Statistics figures.

In other ways, however, the official statistics may actually underestimate young people’s struggles—particularly for university graduates. 

A spring 2023 survey by job-search platform Zhaopin found that, for the second year in a row, only about 50% of graduating university students had an offer in hand by late spring—down from 63% in 2021 and about three quarters in 2018. 

Moreover, nearly a quarter of those surveyed hoped to enter the information-technology and internet sector, where salaries have traditionally been among the highest on offer. 

That industry, although recovering now, was hit hard by the regulatory crackdown of 2021 and 2022, with major job cuts among key employers such as Alibaba, Tencent and Didi.

Whatever the true level of youth unemployment is, what does seem clear is that it has marched much higher over the past four years. 

This is also what official statistics show.

China’s draconian zero-Covid policies punished the service sector, the main source of employment growth for most of the past decade, particularly for young people. 

In contrast to industry, which experienced strong employment growth in both 2020 and 2021, the service sector added just 620,000 net positions in 2021, according to official statistics—the slowest growth this millennium. 

Service-sector employment fell outright by nearly 13 million positions in 2022.

Meanwhile, young people are underrepresented in sectors like manufacturing, healthcare and public service, which held up relatively well during the pandemic, according to Oxford Economics. 

They are overrepresented, the consulting firm notes, in sectors such as retail, hospitality and the IT sector—all of which were particularly punished by Covid-related restrictions or the regulatory crackdown.

Moreover, the service-sector collapse came as an enormous bulge of new students was moving through the university system, presumably in part because students chose to study rather than face the ugly labor market. 

Close to 20% more undergraduate and technical college degrees were issued to college-age students in 2022 than in 2021, for example, compared with low-single-digit growth for most of the past decade.

If all of this sounds like a recipe for disappointment, it is. 

Oxford notes that, even in other Asian economies such as Taiwan, South Korea and Singapore, which aren’t facing burst property bubbles, service-sector employment has been much slower to heal than actual service-sector output. 

China’s labor market, including for the young, will continue to improve, but the process will be slow. 

And the government’s reluctance to spend heavily to support the housing sector—the key driver of most cyclical rebounds in China over the past 20 years—could make it slower still.

That isn’t to say that there aren’t some surprising pockets of strength: China’s rapidly growing and innovative electric-vehicle industry, for example. 

Perhaps aspiring software gurus will, after a rough patch and some retraining, find new work as automotive engineers or battery specialists.

In the meantime, a large cohort of restless underemployed young people will pose a significant political and economic challenge for the world’s second-largest economy.