The most educated generation in China’s history was supposed to blaze a trail towards a more innovative and technologically advanced economy. Instead, around 15 million youth are unemployed and many have lowered their aspirations.
The perfect storm has driven the unemployment rate among urbanites aged 16-24 to record 19.3%. This is more than double the US average. The government’s hardline coronavirus strategy has led to layoffs, while its regulatory crackdown on real estate and education companies has hit the private sector. At the same time, a record number of college and vocational school graduates—some 12 million—are entering the job market this summer. This highly educated cohort has intensified a mismatch between available roles and jobseekers’ expectations.
This has led to a disillusioned youth who are less trustful in companies and more willing to take lower salaries in government. If the trend continues, growth in the world’s second-largest economy stands to suffer. The sheer number of jobless under-25s amounts to a 2% to 3% reduction in China’s workforce, and fewer workers means lower gross domestic product. Unemployment and underemployment also continue to impact salaries for years—a 2020 review of studies reported a 3.5% reduction in wages among those who had experienced unemployment five years earlier.
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There may be fewer young people in government roles, which could mean fewer opportunities for innovation and growth.
“The structural adjustment faced by China’s economy right now actually needs more people to become entrepreneurs and strive,” said Zeng Xiangquan, head of the China Institute for Employment Research in Beijing. Lowered expectations have “damaged the utilization of the young labor force,” he added. “It’s not a good thing for the economy.”
Pre-pandemic, 22-year-old Xu Chaoqun was prepared for a career in China’s creative industries. He decided to go for the state sector after a futile four-month job hunt. “Under the Covid outbreak, many private companies are very unstable,” said Xu, who majored in visual art at a mid-ranked university. “That’s why I want to be with a state-owned enterprise”.
Xu’s story is not unique. Some 39% of graduates listed state-owned companies as their top choice of employer last year, according to recruitment company 51job Inc. That’s up from 25% in 2017. Another 28% chose to work in government.
It’s a rational response in a pandemic-hit labor market. All workplaces have been hit hard by China’s snap lockdowns and strict quarantine measures, but private companies were more likely to lay off workers. Beijing’s main employment-boosting policy has been to order the state sector to increase hiring.
Chinese job hunters crowd booths at the Jiangsu provincial job fair in Nantong, East China.
President Xi Jinping may be relieved that the country’s unemployed youth are trying to join the government rather than overthrow it. During a June visit to a university in the southwestern China’s Sichuan province, he advised graduates to “prevent the situation in which one is unfit for a higher position but unwilling to take a lower one.” He added that “to get rich and get fame overnight is not realistic.”
This message is reaching the masses: According to a survey by Zhilian, graduate expectations for starting salaries have fallen more than 6 percent from last year to 6,295 Yuan ($932) per monthly. The recruiter stated that state-owned enterprises enjoyed greater appeal during the same period.
As companies fail, interviews vanish
But lower income expectations and talent shunning the private sector are likely to lower growth in the long term, challenging the president’s plan to double the size of China’s economy from 2020 levels by 2035—by which point it would likely overtake the U.S. in size.
The phrase “tang ping”—“lying flat”—spread through China’s internet last year. The slogan invokes dropping out of the rat race and doing the bare minimum to get by, and reflected the desire for a better work-life balance in the face of China’s slowing growth. As the unemployment situation has continued to worsen, many young people have adopted an even more fatalistic catchphrase: “bailan,” or “let it rot.”
That concept is “a kind of mental relaxation,” said Hu Xiaoyue, a 24-year old with a psychology masters degree. “This way, even if you fail, you will feel better.” When Hu started looking for work last August, she found it easy to land interviews. “But when it came to spring, only one in 10 companies would offer an interview,” she said. “It fell off a cliff.”
China’s state-owned enterprises (SOEs) aren’t all unproductive behemoths. The economic evidence is overwhelming that SOEs are generally less efficient than companies owned privately. China’s economic boom has coincided with a falling share of SOE jobs in urban employment—from 40% in 1996 to less than 10% pre-pandemic. The trend could reverse.
Grade test papers for the 2022 National College Entrance Exam, Nanjing Normal University. June 14th 2022 Nanjing Province.
Yang Suping/VCG/Getty Images
China introduced a regulation crackdown last year on previously high-flying areas dominated mostly by private businesses that once attracted talented young people. Internet businesses received fines for their monopolistic behaviour, while real estate companies lost access to financing. The private tutoring industry was nearly completely shut down.
Regulatory filings show that China’s top five listed education companies reduced their staffing by 135,000 in the last year after the crackdown. Zhilian states that tech job openings were higher in 2018 than 2021, even though the top tech companies are maintaining their headcounts. Even so, the sector’s allure has faded.
A graduate of the highly ranked Central University of Finance and Economics in Beijing, Hu was set for the tech sector—she interned at three internet companies including video-sharing giant Beijing Kuaishou Technology. However, she changed her mind. “People who are going to work for Internet companies are all worrying about themselves because they feel like they could be fired any time,” she said.
Instead, Hu landed a position at a research institute within state-owned China Telecom Corp. “The working hours of my future job will be 8:30 a.m. to 5:30 p.m., and the workload will be quite light. Internet companies are too consuming,” she said.
The long-term consequences of unemployment
As well as the movement of talent towards state-owned companies, there’s another mechanism at work that can damage long-term growth. Studies from the US, Europe and Japan have shown that the longer young people are unemployed at the start of their careers, the worse their long-term incomes, an effect known as “scarring.”
That’s the risk facing Beiya, who was laid off from an e-commerce company this year. Due to her inexperience, Beiya, 26, chose not to give her name as she was concerned that talking about her job might hurt her chances of getting a job. She missed the opportunity for a position with TikTok’s parent company Bytedance.
“I’m a good candidate with potential but they want to see me in two years,” she said. “But how can I get the experience if no one gives me a job now?”
The 80 million state workers are already employed by the sector. According to Lu Feng of Peking University, this number could increase as high as 2,000,000 on a net basis. “But compared with total demand for jobs, it’s still relatively small,” he said. “We still need private firms to hire.”
This will happen only if the economy expands. Economists predict that China will need to see its GDP grow between 3% to 5% in order achieve its employment goals. Economists are predicting growth closer to 4%—with the outlook highly uncertain due to the prospect of more lockdowns to contain the spread of the coronavirus. “Lack of clarity on an exit strategy from the Covid-Zero policy makes companies wary of hiring,” said Chang Shu, Bloomberg Economics’ chief Asia economist.
On July 20, 2022, workers lined up outside a Beijing office to take their COVID-19 routine tests.
Beijing is offering tax rebates for companies that promise to keep their workers and subsidies in the form of direct subsidies. However, the incentives for hiring new workers are very small. They offer just 1,500 Yuan as an incentive. Provincial subsidies for graduates who start businesses are also small—just 10,000 yuan in the prosperous Guangdong region.
Even if China can return to strong growth in the second half of this year, the youth unemployment problem will persist—the rate has been rising since 2017, reaching 12% pre-pandemic. Economists attribute that to two factors: urbanization and a mismatch between the education system and employers’ needs.
Urbanization contributes to the job crisis
Many of the millions of people who moved from cities to rural areas were able to return home during economic recessions to help absorb any shocks. Younger migrants are staying put more often when their jobs are lost, which is driving up urban unemployment.
“A lot of them are not even raised in rural areas. So they regard themselves as urban people,” says Peking University’s Lu. “The constraints for the government have changed substantially, it’s tougher than in the past.”
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Second, the annual number of graduates in China has increased tenfold over the last two decades—the fastest higher-education expansion anywhere in the world, at any time. The percentage of Chinese youth who attend college is almost 60%. This compares to the developed world.
Vocational graduates are far less than those with academic degrees. Students rioted when their university was rebranded as vocational school last year. High-educated young adults are refusing to work in factories. “That’s the basic matching problem. It is huge in this country,” said Lu.
That’s left manufacturers complaining about shortages of skilled technicians. “There are not a lot of people applying for those jobs, such as electrician or welder,” said Jiang Cheng, 28, an agent for electronics factories in central China.
Others are also oversubscribed. According to a 2021 study of 20,000 randomly selected jobseekers on Zhilian’s website, some 43% of the job applicants wanted to work in the IT industry, while the sector accounted for just 16% of recruitment posts.
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While half of job seekers have a bachelor’s degree, only 20% require one. “There is now compelling evidence of over-education,” the study’s authors wrote, warning that the misalignment “could have profound influences on both individuals and the nation.”
In the longer term, it’s possible that government intervention may get the private sector hiring again, while education reforms and market forces can smooth the misalignment in the labor market.
China is relaxing its regulatory campaign and has passed a vocational education law this year. This will improve standards. Wang Zhe of Caixin Insight was an economist who found that colleges with higher wages in 2020 became increasingly popular by 2021. As applicants’ academic choices adapt to demand in the jobs market, mismatches stand to ease.
But the share of graduates from China’s nine top-ranked universities joining the private sector has fallen since the pandemic, according to research from Hong Kong’s Lingnan University. It is possible that there are ideological shifts and not only market forces at work. Some graduates at top universities are adopting “ cadre style,” according to online forums where they seek tips on where to buy the black zippered windbreakers favored by Xi.
Kay Lou, 25 years old, would be an excellent candidate for any private-sector job, even in today’s environment. Kay Lou, 25, holds a top-ranked masters degree in law from Tsinghua University. She also interned at a brokerage, court, and legal firm.
In the end, she won a government position in Zhejiang province—where some roles attract as many as 200 applicants.
“I felt my work wasn’t meaningful,” she said. “I became increasingly opposed to the capitalists’ pursuit of wealth after I read Marx, so in the end I chose to become a civil servant.”
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