China's Ticking Time Bomb Of Mass Unemployment
Containing the COVID-19 outbreak came at a huge cost in terms of earnings and employment. And no one is taking a harder hit than China's tens of millions of migrant workers.
BEIJING — Crouching on the pavement, Sun Lifing is beginning to worry. It's almost 7 a.m. on Gao Bai Boulevard, beyond Beijing's sixth northern ring road, and he still doesn't know how he's going to earn a daily income. "I come here every day at 5 a.m., but job offers are rare," he says, cap firmly on his head to protect himself from the already scorching sun.
His bundle, made of large, faded canvas, is overflowing with tools: trowel, trowel, hammer, level, plumb line, etc. He has a lot of work to do. "My whole life depends on it," says the 52-year-old man with a chiseled face.
Last summer, Sun left his province of Heilongjiang, in the north-east of China on the Russian border, to try his luck in Beijing. "Coming to a big city, I thought I could earn more than I could on the farm, but it's not easy," he says, surrounded by a dozen migrant workers.
Such workers are known as mingongs, and there are hundreds who meet here every day at dawn, waiting for the courier to stop in search of cheap labor.
"I've been coming to this market for seven years," says Zhang Jifei, from neighboring Hebei province. "Before, there was a lot to do. You could easily get hired in factories or big construction sites. Now factories are closing or laying off workers. And since many people are looking for work, wages are even lower than before. It's harder for me to send money to my wife and daughter."
Next to him, three women decide to board a minibus to pick strawberries for 150 yuan (21 euros) a day.
Making sense of the numbers
An indispensable link in the Chinese economic miracle of the last 30 years, the estimated 290 million migrants who have left the countryside to seek work in cities are now the most vulnerable segment of the population in a developing and unprecedented economic and social crisis caused by the coronavirus epidemic.
After plunging 6.8% in the first quarter — the worst drop since the end of the Cultural Revolution in 1976 — China's economy is slowly recovering. But domestic consumption remains sluggish, and export factories are struggling to find outlets at a time when the world remains largely paralyzed still by COVID-19. As a result, unemployment is exploding in a country with virtually no social shock absorbers.
Officially, the urban unemployment rate stood at 6% in April, compared with 5.2% last December, a loss of some 4 million jobs. But this figure represents only a small part of the reality. "The official survey does not take into account migrant workers, nor the situation in small and medium-sized enterprises and among the self-employed," says Hu Xingdou, an independent economist in Beijing.
Yet it is precisely small shops, wholesalers, restaurants, hotels — all sectors that are intensive in low-skilled labor — that have closed their doors, sometimes permanently, and sent their staff home. At the end of April, a study by Zhongtai Securities, a brokerage firm based in Shandong province, estimated the real unemployment rate in China to be 20.5%, with 70 million unemployed.
The report was quickly removed from the internet and the research director sanctioned. "In the absence of reliable statistics, it is better to look at the merchants who have closed down around you," says Zhang Lin, an observer of the Chinese economy in Beijing.
Estimates vary, but the experts who make them all agree on one point: The social impact of the epidemic is considerable. At UBS, analysts estimate that 70 to 80 million Chinese lost their jobs or were unable to work at the end of March, several weeks after the containment was lifted. "The labor market is improving as activity picks up, but pressures remain," UBS economist Tao Wang noted in a recent memo.
The number of people out of work fell to 33-40 million at the beginning of May, but another threat is looming: Tao Wang warns that China's export-related sectors could shed up to 10 million jobs in the coming months due to the global recession and renewed trade tensions with the United States.
Ernan Cui, an economist at Gavekal Dragonomics, agrees. "It is very likely that tens of millions of people will still be unemployed at the end of the year," he says. The economic impact of containment measures is felt all over the world and China is no exception. But, Ernan Cui adds: "China's social safety net is not designed to compensate for mass unemployment."
China's economy is slowly recovering — Photo: Matt Briney
The unemployment insurance system is particularly inadequate: Its coverage is limited, benefits are modest, and only a tiny fraction of the unemployed receive benefits. Just half of the urban labor force (200 million people) is covered and among migrant workers, it's not a one fifth, in large part because of the hukou (residence permit) systems. The documents are often attached to the place of birth, and thus block migrant workers from accessing an array of social programs (education, public employment, health, etc.) in the cities where they work.
In Gao Li Ying's migrant worker market, Zhang Jifei opens his eyes wide when asked about unemployment insurance. "I've never heard of it," he says. The work he does never involves contracts, he explains. "I can only rely on my own strength."
Only 2.3 million Chinese received an allowance in the first quarter, according to official data. This is an extremely low figure that did not increase despite soaring unemployment. Even for those who were granted aid, the unemployment benefit is far from compensating for the loss of income since it is indexed to a legal, locally set minimum wage, which has increased very little since its creation in 1994.
"Benefits paid in the first quarter of 2020 were 1,350 yuan (190 euros) per unemployed person per month, equivalent to 20% and 30% respectively of the average wage in private and public companies in urban areas," say Nicholas R. Lardy and Tianlei Huang of the Peterson Institute for International Economics.
Growing unease and resentment
This social crisis comes at a bad time for Xi Jinping, chairman and leader of the Communist Party, which celebrates its centennial next year. And this year, 2020, is also the target that the regime set itself for completely eradicating extreme poverty and doubling per capita GDP compared to 2010.
Faced with the time bomb represented by mass unemployment, Beijing is now focusing its entire discourse on stabilizing employment, even abandoning the sacrosanct objective of annual growth — for the first time in 30 years. Employment is now the first of the "six stabilities' that the Communist Party seeks to guarantee, with the emphasis placed on migrant workers and young graduates, at a time when 8.7 million students are preparing to enter the job market.
"We must not neglect any means or spare any effort to promote employment and create new jobs," Prime Minister Li Keqiang told the 3,000 parliamentary delegates gathered in Beijing at the end of May.
The objective for the Chinese communist regime is both political and economic. The crisis has created a major political challenge for the ruling power and threatens to break the "social contract" based on unfaltering political obedience in exchange for economic enrichment.
"To guarantee employment is to protect the people but also to protect political power," says Chen Daoyin, an independent political analyst and former professor in Shanghai. "As long as employment is maintained and basic food problems are solved, the stability of the regime is not threatened."
With just over 200 strikes since the beginning of the year (compared to more than 700 at the same time last year), according to the NGO China Labor Bulletin, Chinese workers are demonstrating even less than before. Anger and dissatisfaction are expressed in other ways, however — particularly on social media, in proportions that are difficult to quantify.
"The fear of the epidemic, the confinement and reinforced control by authorities are not likely to favor social movements," says Eric Sautedé, Asia correspondent for Planet Labor. "But that doesn't mean that there isn't a social crisis."
While global demand is collapsing, stabilizing employment and limiting layoffs are also the best guarantee of reviving domestic consumption, on which the majority of Chinese growth is now based. For the first time since Deng Xiaoping opened up China, real household disposable income fell by 3.5% in the first quarter, while consumer spending fell by 12.5%.
Tax cuts in exchange for maintaining employment, subsidies for hiring migrant workers, increased opportunities for young graduates to join the army, and the relocation of street vendors: Beijing has constantly expanded its range of measures over the last months in an attempt to boost employment. But the challenge remains immense as certain sectors struggle to restart and factories see their order books shrink.
Even before the epidemic, Chinese growth was slowing down, limiting job creation. Aware of the difficulties, the Chinese government has only set itself the goal of stabilizing the urban unemployment rate at around 6%.
Wu Zhuang, who arrived in Beijing last August, has just returned to his native village of Hebei, where he is now reunited with his wife and 18-month-old son. For him, the mingong market in the Gao Li Ying district is now a thing of the past.
"The pressure is on me, but I didn't know how to earn more in Beijing," he explains over the phone. "I never thought an epidemic would happen."