Labour Day: China’s next big virus challenge is creating jobs

Shenzhen, China – The Sanhe Labour Market in the southern Chinese city of Shenzhen normally swells with recruiters and job seekers in the two or three months following the Lunar New Year holiday, which this year ended in late January.

Yet Shenzhen’s largest magnet for those looking for work now stands empty, officially closed as a precaution during the COVID-19 outbreak to reduce crowds and limit possible person-to-person virus transmission.

A man near the market says he recently lost his job as a security guard.

“There are short-term jobs and long-term ones, but they’re paying less than before because there are so many people competing for a small number of jobs,” the man, who did not want to be identified, told Al Jazeera.

As the first country to experience the COVID-19 outbreak, China implemented severe restrictions on movement within the country from late January, leading most businesses to halt for weeks coming out of the holiday.

But since mid-February, as production began to restart, the tables have turned. From having orders but not being able to fill them, many companies are now operating again but have no demand for their products, as the rest of the world struggles to contain the virus.

In a study published on April 23, The Economist Intelligence Unit (EIU) estimates that 22 million more urban workers will lose their jobs this year on top of the five million who became unemployed in the first quarter, while another 250 million could experience wage cuts ranging from 10-50 percent.

China’s official unemployment rate dipped to 5.9 percent in March, from a record-high 6.2 percent in February.

Hitting the brakes

But as China’s economy experiences a sudden deceleration in its growth rate – gross domestic product (GDP) shrank in the first quarter for the first time since at least 1992 when quarterly records began – analysts say joblessness could become much worse.

The EIU estimates the official unemployment rate is likely to peak at about 10 percent. But this does not take into account approximately 300 million internal migrant workers who go uncounted in official statistics.

“If GDP growth is 1 percent [for the whole of 2020], then this is the lowest and no one has seen this before,” Dan Wang, EIU China analyst, told Al Jazeera by phone.

“For the 2008-2009 financial crisis, the Chinese Academy of Sciences had an unemployment rate estimate at 9.4 percent, so this is pretty close,” she said. “Now of course, it is worse than 2008.”

Some estimates put real urban and rural unemployment, with those migrant workers factored in, even higher.

Societe Generale, a French investment bank and financial services company, estimates that about 70 million to 80 million people have become unemployed, raising the urban unemployment rate to about 17 percent, according to a report released this week.

“Even though supply disruptions have mostly disappeared, the recovery will not take place quickly due to the export shock and the lagging impact of a sharp fall in income and profits,” Michelle Lam, an economist with Societe Generale in Hong Kong told Al Jazeera.

The ‘six ensures’

Meanwhile, the man near Shenzhen’s biggest job market says the only readily available work at the moment is in factories making surgical masks, but most of the facilities already have enough workers. Without a job for a month now, he pays 15 yuan ($2.13) a night for a bunk-bed in a room with several other people and he is running low on money for food.

“There are many people like me who are struggling to find a job, and the more people there are, the harder it gets to find one,” the man, originally from nearby Jiangxi province, said.

With most unemployment likely to be concentrated in the private sector – small and medium-sized companies in service industries, exports, and informal business – China’s leadership faces a severe test with how to address these areas of the economy which it has not had a great influence on in the past.

That leadership began pushing a new set of policies in mid-April, termed the “six ensures”, with “ensure employment” topping a list of key concerns. But it remains to be seen how authorities will deal with a surge in unemployment, particularly among rural migrants.

China’s Premier Li Keqiang has floated the idea of direct unemployment payments to migrant workers, which would be a first if it comes to fruition. No detailed plans for how such payouts would work have been released.

China does have a large state fund of unemployment insurance available, though this is mainly for urban workers and those employed by state-owned enterprises (SOEs).

Most migrant workers do not qualify because of contractual issues, residence requirements, or are restricted from accessing these funds due to complicated bureaucracy.

“The other point is that the benefits themselves are very, very low,” Geoffrey Crothall, communications director for China Labour Bulletin told Al Jazeera. “We’re talking about, at the most, 2,000 yuan ($284), which is not much when you have a family to support or rent to pay.”

Reinforcing the net

Sebastian Eckardt, the World Bank’s lead economist for China, says the crisis may increase demands for a more robust social safety net.

“Ultimately, the crisis showed clearly how fragile our economies are,” Eckardt told Al Jazeera.

“There is an opportunity here in China to rethink and accelerate reforms of its social safety nets especially for those that fall outside the formal systems, like migrant workers. This is smart social policy but it also makes economic sense,” he added.

“It would not only help protect workers and households from the distress caused by job and income losses but also mitigate lasting weakness in private consumption thereby boosting domestic demand which is critical for China’s recovery.”

Housing costs, particularly in the big cities those workers once flocked to have also risen and cheaper rents are restricted to the outskirts.

In the first three months of 2020, only 2.3 million people in China received unemployment benefits – around 0.5 percent of the entire urban workforce – according to data released by the Ministry of Human Resources and Social Security on April 10.

“This class of workers [migrants] is more likely to be exposed to new-economy costs for housing and not benefit from legacy housing awarded or sold to SOE workers or swapped to farmers in return for land,” Anne Stevenson-Yang, co-founder and research director of investment advisory firm J Capital Research Ltd, told Al Jazeera.

Stevenson-Yang said many migrant workers had already returned to their hometowns in recent waves in 2012 and 2015, with local service-sector jobs in their provinces often absorbing these returnees.

The question now is where can these people work in their home provinces after the latest wave of job losses?

“These jobs must be gone or disappearing now.”

And as jobs go, so does hope in many instances, raising the possibility of social unrest. Avoiding that has become a key driver of the government’s “six ensures” policy prescription, analysts say.

“I have never been a fan of the argument that social unrest will follow economic pain in China,” Stevenson-Yang said. “These young people with middling educations and no iron rice bowl have no ready networks for social organising or even for articulating discontent. But one does have to feel that the new, white-collar, lumpenproletariat has to become a pressure cooker.”

More than 460,000 businesses closed, went bankrupt or had operating licenses revoked in the first quarter, including more than 26,000 export-oriented companies, corporate registration database Tianyancha reported in an early April report. New business registrations dropped by 29 percent for the quarter, year-on-year.

Uncertainty for the future

Besides migrant workers, the other key vulnerable group is new graduates, Wang of the EIU said.

An estimated 8.7 million students will graduate this June, approximately 400,000 more than the previous year. Students usually start their job search around March, but this year they may have to wait much longer.

With new job creation tanking – companies only reported 2.3 million new hires in the first quarter, down 41.2 percent year-on-year – this year’s graduating class faces a “lost generation” moment if the situation does not improve quickly.

In the first two months of the year, new job openings on the recruitment website Zhaopin were down 30 percent over the previous period a year before.

China’s leadership has told state-owned enterprises to hire more new graduates, but with profits down 60 percent for those companies in the first quarter, according to State Council figures released earlier this month, it is not clear what kinds of jobs they will have to offer.

“University students are the policy priority,” Wang said.

With additional reporting by Jonathan Zhong.