Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / How Chinas Youth Unemployment Is Reshaping Consumer Spending
Transcript
- Lucas: So China's youth unemployment rate just hit 20.8 percent in May — that's a fresh record since they started publishing this data in 2018. And the really interesting thing is, you're starting to see that number show up in consumer spending patterns in a way we haven't really seen before. Luna: Right, because for years the narrative was that young Chinese consumers were the engine of growth — big spenders on luxury, travel, the whole aspirational lifestyle. That seems to be cracking. Lucas: Exactly. And you can see it in the numbers from the major e-commerce platforms. PDD and JD have both reported that spending per user among the 18-to-29 demographic dropped about 12 percent year-over-year in the second quarter. That's not just a blip — that's a structural shift. Luna: And PDD's stock is down 0.5 percent over the last five days — not a huge move, but JD is off 3.5 percent. BABA is down 7.6 percent. The market is pricing in a real slowdown in domestic consumption. Lucas: Yeah, and the yuan weakening to 6.77 per dollar isn't helping either. A weaker yuan makes imports more expensive, which squeezes margins for platforms that sell a lot of foreign-branded goods. But the bigger story is the labor market itself. Luna: So what is the government actually doing about the unemployment number? I know they've been talking about expanding vocational training and subsidies for private employers — but is that working? Lucas: It's early. In April, they announced a 100-billion-yuan fund to subsidize companies that hire recent graduates. That's roughly 14 billion dollars. But the scale of the problem is enormous — there are something like 11 million college graduates this year alone. Luna: So 100 billion yuan sounds like a lot, but divided across 11 million graduates, that's about 9,000 yuan per person. That's not even a month's rent in Beijing. Lucas: Exactly. And the subsidy is per company, not per graduate, so it's even more diluted. The real issue is that the sectors that traditionally absorbed young workers — real estate, education tech, even manufacturing — are all shedding jobs, not adding them. Luna: And we saw that in the trade data too. Exports are up year-over-year — 3,508.7 billion in goods and services in the first quarter — but imports are even higher at 4,328.7 billion. So the trade surplus is shrinking, and the current account deficit is getting worse. Lucas: That current account deficit hit 226.8 billion in Q1, down from 221 billion in the prior quarter. So the external sector is actually dragging on growth, which means domestic demand has to carry more weight. And domestic demand is being held back by exactly this youth unemployment issue. Luna: It's a bit of a vicious circle. Weak job market means weak consumption, which means companies don't hire, which keeps the job market weak. Lucas: Right. And the government is walking a tightrope. They don't want to overstimulate because they're worried about property bubbles and financial stability. But if they under-respond, the social and economic costs of a lost generation of young workers could be huge. Luna: And that's where the comparison to Japan's lost decade comes up. But China's demographics are different — they still have a relatively young population, though aging fast. Lucas: Yeah, Japan's problem was that companies stopped hiring fresh graduates for years, and those cohorts never caught up in terms of career earnings. Some economists are worried that China is repeating that pattern, but with a much bigger population. Luna: There was a paper from Peking University last month that tracked lifetime earnings for cohorts who graduated in 2020 through 2024. They found that even three years out, graduates from those years earn about 15 percent less than comparable cohorts from 2015 to 2019. Lucas: That's a very specific number, and it's the kind of thing that should worry anyone looking at China's long-term consumption story. Because if young people are permanently scarred in terms of earnings, the whole consumer economy shifts toward lower-margin, necessity-based spending. Luna: And that shows up in the e-commerce mix. PDD is doing well because it's the discount platform — it's essentially the Chinese version of dollar stores. JD and BABA, which have more mid-range and premium goods, are struggling. Lucas: Speaking of keeping the show going — and this might sound like a tangent, but it connects — we're able to dig into these numbers and bring you this analysis every day because of listeners who support us directly. If you find value in understanding how the Chinese economy actually works, buy me a coffee dot com slash fexingo is where that happens. Luna: Yeah, a couple of dollars a month genuinely makes a difference. It keeps the show ad-free and lets us spend time on these deep dives instead of chasing clickbait. Lucas: Exactly. And that support is what allows us to keep drilling into the real mechanics — like how the youth unemployment data connects to trade flows and currency policy. So, thank you to anyone who's already chipped in. Luna: Now, back to the currency piece. The yuan at 6.77 — that's actually a slight depreciation from last week's 6.76. But over the past month, it's been pretty stable. Does that suggest the PBOC is managing it carefully to avoid adding to the unemployment pain? Lucas: That's exactly the reading. The central bank is using its daily fixing to signal a narrow trading band. They don't want a sharp depreciation because that would raise import costs and hit consumer staples. But they also don't want an appreciation that would hurt exporters. So they're basically pinning the yuan in a range. Luna: And the exporters are still doing okay? The trade data showed exports up year-over-year, so it's not like the export machine is broken. Lucas: Right, exports are actually growing — 3,508.7 billion in Q1 is up from 3,350.6 billion a year ago. But the import number grew faster — 4,328.7 billion versus 4,135.6 billion. So the trade surplus narrowed. Part of that is energy imports — oil prices are up — and part is that domestic demand for raw materials is still holding up, despite the consumer weakness. Luna: So the economy is really two-speed. Export industries and heavy manufacturing are still chugging along, but the domestic consumer story — especially the young urban consumer — is in a funk. Lucas: Exactly. And that's why the stock market is punishing companies that are exposed to domestic consumption. FXI is down 3.4 percent over five days, KWEB down 1 percent. BABA and JD are getting hit hard, but Baidu, which is more about search and AI, is actually up 0.6 percent. The market is making a very clear distinction. Luna: And NIO is down 3 percent over five days. The electric vehicle space — which was supposed to be the next big consumer driver — is also getting squeezed, partly by trade tensions, partly by weak demand. Lucas: Yeah, and on the trade front, we just saw China widen export curbs on Japan targeting drone and defense sectors. That's episode 81 territory, but it feeds into the broader picture of geopolitical friction that depresses consumer confidence. Luna: So if you're an investor looking at China right now, what's the takeaway? Avoid domestic consumer plays, look at exporters or maybe the industrial side? Lucas: I think that's the consensus for the near term. But the risk is that if youth unemployment doesn't improve, the consumer malaise spreads. Even exporters could get hurt if the global economy slows — and with the dollar index at 120.4, emerging markets are under pressure. Luna: And the dollar strength isn't letting up. The Fed is still hawkish, especially after that Supreme Court ruling on the Fed governor — that might actually give the Fed more independence in the near term, but it's uncertain. Lucas: Right. So China is caught between a strong dollar, weak domestic demand, and a labor market that isn't recovering. The policy response so far has been measured — targeted subsidies, currency management, infrastructure spending — but the question is whether it's enough. Luna: One thing we haven't mentioned: the digital yuan. Could that play a role in stimulating consumption? There have been pilot programs giving out digital yuan coupons to young people. Lucas: That's a good point. The digital yuan trials have included consumption vouchers in several cities. The idea is to bypass the banking system and get money directly into people's hands. But the amounts are still small — maybe a few hundred yuan per person. It's more of a test than a real stimulus. Luna: And the behavioral effect might be limited. If you're worried about your job, a 200-yuan digital coupon isn't going to make you go out and buy a new phone. Lucas: Exactly. The core issue is income security. Until young people feel confident that they can get a job and keep it, consumption will stay depressed. And that's a structural problem that won't be solved by monetary policy or digital gimmicks. Luna: So we're watching the July data closely. If the youth unemployment rate ticks down, that's a positive sign. If it stays above 20 percent, expect more pressure on consumer stocks. Lucas: Yeah, and on the policy side, we might see the government ramp up direct transfers to low-income households, or expand the vocational training fund. But those take time to implement. For now, the numbers are telling a pretty clear story. Luna: And that story is: China's consumer is tired. And the young consumer is the most tired of all. Lucas: That's the headline. We'll keep tracking it. For Fexingo Business, I'm Lucas. Luna: And I'm Luna. Catch you next time.