Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why China's Youth Are Leaving the Workforce
Transcript
- Lucas: Alright, so we've spent a lot of episodes talking about China's trade deficit and what it means for the yuan, for stocks, for the whole growth model. But today I want to zoom in on something that's been quietly shifting underneath all of that. The youth jobless rate gets the headlines, but the real story might be that young people are leaving the workforce altogether. Luna: Leaving the workforce? You mean like dropping out of the job hunt entirely? That's a big claim. Where are you seeing this? Lucas: So the official youth unemployment rate in China hit around 17 percent earlier this year, and that's bad. But that number only counts people who are actively looking for work. If you're not looking, you're not counted. And there's growing evidence that a lot of young people are simply opting out. The labor force participation rate for the 16 to 24 age group has been dropping steadily for years. Luna: So the official number might actually be understating the problem. If more and more young people just stop looking, the unemployment rate could stay flat or even fall, while the real situation gets worse. Lucas: Exactly. And this isn't just anecdotal. You've got surveys showing that a significant chunk of recent graduates are either delaying their job search or going back to school. The 'lying flat' movement — tang ping — it's not just a meme anymore, it's a lifestyle choice for some. And it's a rational response to an economy where the kind of jobs available don't match what they were promised. Luna: Right, and that's the thing. You've got all these kids graduating from university, and the jobs that are out there are either low-paying service gigs or they require connections they don't have. So instead of grinding for a job that barely covers rent, they just... don't. Lucas: And that's a huge problem for Beijing, because the whole growth story is shifting toward domestic consumption. If young people aren't working, they're not earning, and if they're not earning, they're not spending. So this isn't just a social issue, it's a macroeconomic one. Luna: And it ties into the trade deficit too, right? Because if consumption is supposed to replace exports as the growth engine, you need people with money in their pockets. If a big chunk of the youth population is out of the game, that engine sputters. Lucas: Exactly. And look at the numbers we're seeing. The trade balance has actually improved a bit — the deficit narrowed to 73.3 billion in June, from 77.6 the month before. But the current account deficit is still widening, down to 226.8 billion. So the external picture is still shaky. And that puts even more pressure on domestic demand to carry the load. Luna: So if the youth are the future consumers, and they're checking out, that's a double whammy. Not only are they not contributing to growth, but they're also not forming the kind of households that buy homes, cars, appliances — all the stuff that drives the economy. Lucas: And that's the part that really scares policymakers. Because if you look at the property market, it's already weak. And part of that is demographic — there just aren't as many young people as there used to be. But the ones who are there, they're not buying. They're not getting married, they're not having kids, they're not taking on thirty-year mortgages. And that's a structural problem. Luna: It's like they've done the math and decided the traditional path — work, marriage, mortgage, kids — isn't worth it. And who can blame them? The cost of housing is still insane relative to entry-level salaries, even after all the price cuts. Lucas: Right. And this is where I think the 'lying flat' movement is actually a rational economic response, not just laziness. If the expected return on a lifetime of grinding is lower than the cost, then opting out makes sense. But the problem is, that's terrible for the macro economy. Luna: So what can Beijing actually do about it? They can't force people to work, and they can't force them to buy houses. But they can try to make the jobs better, or make the safety net stronger so that people feel like they can take risks. Lucas: And that's the crux of it. The government has been talking about expanding the social safety net for years, but progress is slow. And in the meantime, you have policies like the anti-996 campaign, which was supposed to crack down on excessive overtime, but that actually might have reduced earnings for some workers who relied on overtime pay. Luna: Interesting. So even well-intentioned policy can backfire if it doesn't account for the reality of how people actually make a living. Lucas: Exactly. And that's the tension. You've got a government that wants to shift to a consumption-led model, but the structural incentives are still pushing young people out of the workforce. And we're seeing the market react. Look at Chinese tech stocks — they're down over the past week. FXI, the big ETF, is off two percent in five days. KWEB, the internet fund, down almost three. And that's partly sentiment, but it's also the market pricing in a weaker consumer story. Luna: So the stock market is basically saying, 'We don't believe the consumption story is going to save the day anytime soon.' And with the yuan staying flat at 6.75 per dollar, there's no currency tailwind either. Lucas: Right. And the dollar index has actually eased a bit, down to 119.1 from 119.5, but the yuan isn't really taking advantage. That tells you the market is more worried about domestic fundamentals than external pressure. Luna: So we've got a real chicken and egg problem. You need consumption to grow, but the people who would drive that consumption are sitting on the sidelines. And the people who are working are too insecure to spend freely. Lucas: And that's where I think the youth labor force participation rate is actually a better leading indicator than the unemployment rate. Because unemployment just tells you about the people who are still in the game. But when people start leaving the game entirely, that's a much more serious signal. Luna: So what would it take to actually reverse this? Is it just about better jobs, or is it something deeper, like a cultural shift? Lucas: I think it's a bit of both. You need better jobs, sure. But you also need to restore a sense of optimism about the future. And that's hard to do when you've got a decade of headlines about trade wars, tech crackdowns, and now a trade deficit that people thought was impossible. Luna: Yeah, it's almost like a loss of faith. And that's not something a stimulus package can fix overnight. Lucas: Exactly. And honestly, if walking through the economy with us has made something click for you, and you want to keep having these conversations, there's a small way to support the show. It's buy me a coffee dot com slash fexingo. Every little bit helps keep this thing going. Luna: Yeah, and we really do appreciate it. It's what keeps the podcast ad-free so we can talk about these things without any strings attached. Lucas: So back to the youth. I think the real question for Beijing is whether they can make the math work for young people again. And that means addressing the cost of living, especially housing, and creating genuine career pathways that don't require burning out. Luna: And it might also mean changing the narrative. If the government can't promise a better future, then at least they can acknowledge the reality and work from there. Lucas: And that's the thing. The official data is still pretty opaque. The youth unemployment rate was actually suspended for a while in 2023, and when it came back, it had a new methodology that excludes students. So we're flying a bit blind. But the labor force participation numbers, even if they're rough, point in a clear direction. Luna: So what's the one thing you'd tell a listener who wants to understand this? Like, if they're talking to a friend about China's economy, what's the takeaway? Lucas: I'd say this: the youth unemployment rate is the symptom, but the labor force participation rate is the disease. And if young people keep opting out, the trade deficit and the consumption story are just symptoms of a deeper demographic and social shift that no amount of monetary easing can fix. Luna: That's a stark way to put it. But it's a necessary one. I'm curious to see if the government actually changes course on some of these structural issues, or if they just keep patching the leaks. Lucas: Yeah, and that's the question we'll be watching. For now, the data is clear: young people in China are voting with their feet, and the economy is going to have to adapt.