Chinese officials shifting the economy away from exports and investment can allow growth to sink closer to 6 percent within the next five years without triggering a destabilizing jump in unemployment.

The pace of expansion needed to absorb new entrants to the labor force will slip to 6.4 percent in 2018 from 7.3 percent this year, according to the median forecast in a Bloomberg News survey of 12 economists last month. Premier Li Keqiang is targeting a 7.5 percent expansion in 2013.

China’s declining working-age population and a jump in jobs in labor-intensive service industries such as logistics may help to limit unemployment in coming years. Swelling local-government debt and environmental degradation underscore the case for letting growth settle at a slower pace than the investment-driven 9.3 percent average of the past five years. 

“We have a shrinking workforce that’s unfavorable for headline growth but favorable from an employment standpoint,” said Andrew Polk, an economist in Beijing with The Conference Board, a New York-based research group. “As the economy shifts towards services, which are more labor-intensive and less productive, you can have slower growth but still have robust job creation.”

Ten million new manufacturing jobs would correlate to an economic growth rate of roughly 8 percent, whereas 10 million services sector jobs would correspond to a pace of about 5 percent, he said. The Communist Party is trying to avoid the social instability that a jump in unemployment could bring.

After slowing for two quarters, China’s economy is showing increasing signs of stabilizing and business confidence is improving, statistics bureau spokesman Sheng Laiyun said at a briefing in Beijing Monday. The Shanghai Composite rose 1.1 percent as of 10:54 a.m. local time, paring this year’s decline to 8.3 percent.

As recently as 2010, Premier Wen Jiabao said in a Communist Party magazine that 8 percent economic growth was necessary for “basic stability of employment.” In contrast, his replacement, Li, was quoted by Chinese news organizations last month as saying that 7 percent was the minimum acceptable and Finance Minister Lou Jiwei said 6.5 percent may be tolerable in the future.

Signs of stress in the job market this year have included shipbuilder China Rongsheng Heavy Industries Group Holdings Ltd. cutting its workforce and manufacturing surveys that pointed to contractions in employment.

The broader labor market picture is healthier, according to Royal Bank of Scotland Plc. Hong Kong-based analyst Louis Kuijs, who formerly worked for the World Bank in Beijing. Labor ministry figures show 7.3 million new urban jobs were created in the first half of the year, up from 6.9 million a year earlier.





The United Nations estimates that the working-age population in China, aged between 15 and 59, will shrink to 929 million by 2020 from 944 million in 2010. As a proportion of the total population, the decline will be to 64.8 percent from 69.4 percent. That shift and the increasing role of service industries is cutting the nation’s growth requirements.

“If you ask a labor-intensive enterprise whether it’s easier or more difficult to look for workers, I bet that 99 percent will say that it’s more and more difficult,” said Li Tao, founder of Beijing Social Work Development Center for Facilitators, a non-governmental organization that assists migrant workers. “The unemployment rate of migrant workers is lower than in previous years. Usually, it’s that they want to quit, not that they are laid off.”

Beijing worker Wang Yanli, 24, a migrant from Hebei province, underscores Li’s point. She resigned from a job as a convenience-store manager earning more than 4,000 yuan ($653) a month because she wanted a summer break. Wang said she planned to search on the internet for a job after taking a month off. “There are a lot of opportunities out there,” she said.

One piece of data that economists pay little attention to is China’s main unemployment gauge, the quarterly urban jobless rate, which excludes migrant workers such as Wang and hasn’t budged from 4.1 percent in almost three years. The gauge rose from 4 percent in mid-2008 to 4.3 percent in the depths of the global financial crisis as China’s exports collapsed and millions of migrant workers lost their jobs.

Instead, analysts look at measures such as the employment components of government-backed and private purchasing manager indexes and official surveys of labor supply-and-demand, urban wages and migrant workers. (Bloomberg)









Planned Economy



China’s lack of data is a legacy of its planned economy when rural peasants worked on farms and urban residents were allocated jobs. That changed in the 1990s when then Premier Zhu Rongji started overhauling state-owned enterprises, which led to 30 million to 50 million workers losing their jobs, according to estimates in International Monetary Fund reports.

Sukti Dasgupta, a Bangkok-based senior economist at the International Labor Organization, a United Nations agency that is helping the government improve labor statistics, says that a big concern is a lack of rural data and information on differences between regions.

“Policies aimed for example at reducing disparities between urban and rural workers, a key concern of the Chinese authorities, will be difficult to advise and implement without a full knowledge of the employment and unemployment situation in rural areas,” she said.

Better data, with regional, educational and age breakdowns, would help policy makers and economists identify bottlenecks as the government encourages rural workers to move to cities and the economy shifts from manufacturing towards services, said Polk from The Conference Board.

“Urbanization is the big buzz word and that’s not just about growth, it’s about employment,” said Polk. “You can’t just move people to cities and expect them to get jobs, you have to create markets and employment opportunities for them.” (Bloomberg)