Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why Chinas Youth Jobless Rate Isnt The Whole Story
Transcript
- Lucas: So the official youth unemployment rate for 16 to 24 year olds hit 21.3 percent in June. That's the highest since they started publishing this number back in 2018. Luna: And that's a record, right? But it's also a number that the government briefly stopped publishing last year. So how much should we trust it? Lucas: Right, they paused it for a few months in 2023, which tells you how politically sensitive this metric is. But even taking the official data at face value, it's a real problem. And I think the more interesting story is what's driving it — it's not just a cyclical slowdown, there's a structural mismatch happening. Luna: A structural mismatch. You mean like, too many graduates for the jobs available? Lucas: Exactly. We're talking about a record number of college graduates this year — over 12 million — and they're all aiming for white-collar roles in tech, finance, and government. But the economy isn't creating enough of those jobs. Meanwhile, there are plenty of openings in manufacturing and services, but they're not seen as desirable, or they require skills that graduates don't have. Lucas: And here's the thing — this isn't just about the jobless rate, it's about what it means for China's growth model. For years, the story was exports and investment. Now they're trying to shift to domestic consumption, and that requires a strong middle class with stable incomes. If young people can't find jobs, that whole plan gets wobbly. Luna: So this isn't just a social issue, it's an economic one. And it ties directly into the trade deficit we've been talking about, right? Lucas: Exactly. If domestic consumption is supposed to replace exports as the growth engine, you need people with money to spend. And a 21 percent youth unemployment rate isn't exactly fueling that. Luna: Before we go deeper — and I know we just started, but this feels like the right moment — a quick honest thing. This show is only possible because a handful of listeners chip in monthly through buy me a coffee dot com slash fexingo. It's literally what funds us making this many episodes, ad-free. Lucas: Yeah, it's a small group, but it keeps the lights on. And if you're finding value in what we're doing, that's the best way to support us. Now, back to the numbers. Luna: So where are these jobs actually being created? I mean, the services sector has been growing, but it's not absorbing graduates like it used to. Lucas: Right. Look at the data — services employment has been expanding, but it's mostly in low-wage, low-skill roles like delivery drivers and ride-hailing. Those jobs don't require a degree, and they don't pay enough to build a career on. Meanwhile, the high-paying tech jobs are concentrated in a few cities, and they're not growing fast enough. Lucas: And there's another layer here: the government's push for high-tech manufacturing. They're investing billions in semiconductors, AI, and electric vehicles. But those industries are capital-intensive, not labor-intensive. A semiconductor fab might cost billions to build, but it employs a few thousand highly skilled workers — not the millions of graduates entering the labor market each year. Luna: So the jobs that are being created don't match the skill sets of the people coming out of university. That's a real mismatch. Lucas: Exactly. And it's not just about skills — it's about expectations. College graduates in China have traditionally expected white-collar, stable jobs, often in the public sector. But those jobs are shrinking as the government tries to streamline. And the private sector, especially the tech companies, have been laying off workers over the past couple of years. Lucas: Now, the official numbers only track people who are actively looking for work. So the real picture might be worse — many graduates are just sitting out, or going back to school to avoid a bad job market. Luna: Right, and there's also the gig economy. I've seen estimates that over 200 million people in China are working gig jobs in some form. But those aren't stable, and they don't offer the benefits that a traditional job would. Lucas: Right, and that's a double-edged sword. Gig work provides income, but it doesn't provide security. And when you're talking about building a middle class, security matters. The government knows this, which is why they've been pushing vocational training and trying to expand the services sector in smaller cities. Lucas: But those policies take time, and right now, the pressure is mounting. We saw the youth jobless rate spike in June, and that's usually the peak month anyway, because that's when graduates enter the market. So the question is whether it falls in the second half of the year, like it normally does. Luna: And if it doesn't, that's a signal that this is structural, not just seasonal. Lucas: Exactly. And we're already seeing some signs. The government has been rolling out subsidies for companies that hire young people, and they've increased public sector hiring in some areas. But those are band-aids, not solutions. Luna: How does this connect to the broader economic indicators we've been seeing? Like the trade deficit narrowing a bit in June — does that have anything to do with the job market? Lucas: Not directly, but there's a link. The trade deficit has been narrowing because imports have been growing faster than exports, which is partly a sign of stronger domestic demand. But if people don't have stable incomes, that demand isn't going to be sustainable. So the job market is really the linchpin for the whole transition to a consumption-driven economy. Lucas: And there's a currency angle too. The yuan has been stable around 6.75 per dollar, and that's partly because Beijing wants to avoid volatility that could hurt the economy. But if the job market deteriorates, they might be tempted to ease monetary policy or weaken the yuan to boost exports, which would create new challenges. Luna: So the youth unemployment rate isn't just a social statistic — it's a leading indicator for the whole economy. Lucas: It really is. And that's why we're spending an episode on it. For investors, this is something to watch. If the jobless rate stays high, consumption might not pick up, and that would affect everything from e-commerce stocks like Alibaba and PDD to broader indices like the FXI. Luna: We should also mention the political dimension. This is a sensitive topic for Beijing. They stopped publishing the data last year, and they've revised the methodology. So there's a question of how much we can trust the official numbers. Lucas: Right, and that's a fair point. The official rate only includes people who are actively looking for work, and it excludes those who have given up or are doing gig work. So the real number could be higher. Some private estimates put it at 30 percent or more for that age group. Luna: That's a huge difference. So what should listeners take away from this? What's the one thing they should remember? Lucas: I'd say this: China's youth unemployment problem is not just about the current economic slowdown. It's about a fundamental mismatch between what the education system produces and what the economy needs. And until that's fixed, it's going to be a drag on growth and a source of social instability. Lucas: And for investors, it's a reminder that China's growth story is shifting. The days of easy export-led growth are over. The future depends on whether they can create good jobs for their young people. Luna: So what should we watch in the coming months? Any specific data points? Lucas: Keep an eye on the July and August jobless numbers. If they fall sharply, that's a good sign — it means the seasonal effect is working. If they stay above 20 percent, that's a red flag. Also, watch for any new policy announcements aimed at the labor market, especially around vocational training or subsidies for employers. Luna: And I'd add: watch the services PMI. If services are still expanding, that's a positive, but if it starts to contract, that's a problem because services is where the job growth should come from. Lucas: Right. And on the currency side, if the yuan starts to weaken persistently, that could be a sign that Beijing is prioritizing exports over domestic stability, which would have implications for the trade deficit and for your portfolio. Lucas: So, to sum up: the youth unemployment rate is a window into China's future. It's not just a number, it's a test of whether the country can transition from a manufacturing-led to a consumption-led economy. And right now, that test is not going very well. Luna: But it's still early. The government has the tools to address it, if they're willing to use them. It's a matter of political will. Lucas: Absolutely. And that's what makes this such a fascinating story to follow. We'll be tracking it closely here on the show. Luna: And if you're listening, let us know what you think. Are you seeing these trends in your own industry? We love hearing from you. Lucas: That's it for today. Thanks for listening, and we'll catch you next time.