China’s Fuzzy Math on Unemployment

News Analysis

China is facing widespread unemployment as the nation struggles to emerge from the CCP virus epidemic.

The country’s true economic picture remains hidden, however, as the Chinese Communist Party (CCP) continues its policy to withhold information from the rest of the world.

Officially, the Chinese economy contracted by 6.8 percent during the first quarter. The country was under lockdown during much of that time due to the CCP virus, commonly referred to as the novel coronavirus. The real rate of GDP (Gross Domestic Product) deterioration may never be known, but is believed to be far higher than the officially disclosed figures.

On the unemployment front, Beijing said the nation’s official unemployment rate increased to 5.9 percent in March, up from 5.2 percent in December 2019. That’s an increase from 26 million people from 23 million in raw numbers.

Meanwhile, the number of people officially receiving state jobless benefits did not budge. Chinese Ministry of Human Resources and Social Security said only 2.3 million workers were given jobless benefits as of March 2020, the same figure as those receiving benefits three months earlier, before the CCP virus pandemic became widespread and much of the country’s economy was shut down.

Higher Than 20 Percent

Those are some incredulous figures. So much so that a report by a major domestic Chinese brokerage firm revealed that unemployment could be four times higher than the official numbers indicate.

Shandong-based Zhongtai Securities wrote in an April 24 note that as many as 70 million people were jobless in China and the country’s real unemployment rate was 20.5 percent.

“The urban surveyed unemployment rate is obviously flawed in depicting the unemployment situation, because of China’s special condition that there is a very large group of migrant workers,” the note read, according to a Bloomberg report.

The report was quickly rescinded and was no longer mentioned on Chinese social media by April 27.

It was a rare public rebuke of China’s sensitive economic data by a major brokerage firm. And its stakes were apparent a few days later. Li Xunlei, head of research at Zhongtai Securities, was removed from his post and was replaced by deputy director Dai Zhifeng.

Fuzzy Math

The reality is that China’s unemployment figures only count urban workers, as Zhongtai pointed out. The vast majority of its 50 million migrant workers likely remained unemployed in March as travel restrictions were still hindering movement of workers.

China’s power generation levels also seem to corroborate a contraction far greater than official Beijing statistics.

Huaneng Power International, China’s largest publicly listed domestic power generator, revealed in a securities filing that its power output declined by 18.5 percent from December to March on an annualized basis. Most of Huaneng’s power generation capacity is in China’s central and eastern regions. Another listed generator, China Resources Power Holdings, said its output decline was 12.5 percent during the same time period.

Morgan Stanley’s estimates using consumer consumption also arrive at far higher levels of unemployment than official data suggests.

“We estimate the numbers of de facto unemployment (no work due to business suspension) and underemployment (working part time or fewer hours than they desire due to insufficient demand) could peak at 80mn and 100mn respectively in the near term, based on our channel check on the resumption status of industrial and service sectors,” Morgan Stanley analysts wrote in an April 17 report to clients.

Assuming China’s jobless figures are north of 70 million, how does that square with the disclosure that only 2.3 million people are receiving benefits?

Again, those figures are cherry-picked. Workers who have jobless benefit insurance are those who work for large, state-owned employers—most of which likely did not lay off or furlough workers.

The country’s small and medium-sized companies, including privately-owned companies, do not have unemployment insurance. So those workers are likely jobless, yet are not counted to receive jobless benefits.

Aside from arguments about numbers, it’s undeniable that such levels of unemployment pose a threat to China’s social stability and support of the ruling CCP regime. Regulators are likely forced to continue monetary easing measures to support the job market, including handing out cash directly to poorer families.

Yu Jiantuo, deputy secretary-general of the China Development Research Foundation, wrote in an op-ed (in Chinese) on Caixin to call for direct cash transfers, stating that those are more relevant than discounts on travel and consumption.

“How many families want to travel when they are worried about buying rice, vegetables, and meat?,” he wrote.

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Author: Fan Yu

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