Latest / China Economy with Fexingo: Beijing's Policies, Trade, and Asia-Pacific Markets / Why Chinas Youth Unemployment Is Reshaping Its Economy
Transcript
- Lucas: China's youth unemployment rate hit 20.8 percent in May. That's a record — and it's the highest it's been since the government stopped publishing the number for about a year back in 2023. Luna: Twenty-point-eight. And that's the official number, which we know tends to undercount. The real figure could be higher. Lucas: Exactly. The official survey only counts people who are actively looking for work. If you've given up — dropped out of the labor force entirely — you don't show up in that denominator. So the headline number is bad, but the underlying picture is worse. Luna: And this comes as Chinese tech stocks are getting hammered this week. FXI is down 5 percent in five days, KWEB down 5.4 percent. Alibaba lost 7.5 percent. Investors are clearly worried about something. Lucas: Right, and I think the youth unemployment number is part of that story. If you're a young person in China today, you're facing a terrible job market. That doesn't just affect your income — it affects your willingness to spend, to take on debt, to be an optimistic consumer. And that hits Alibaba, JD, the whole consumption narrative. Luna: It's interesting. I was reading a recent report from a Beijing-based think tank that said the state sector is absorbing more graduates than ever, but it's still not enough. Lucas: Right. There's a structural mismatch. China produces about 11.7 million college graduates every year. And the economy is generating jobs — but not enough white-collar professional jobs in the private sector. The state-owned enterprises and government agencies are the preferred employers — stable, good benefits — but they can't absorb everyone. So you get this intense competition for a shrinking pool of 'good' jobs. Luna: And the alternative is gig work, or a job in a factory town — which, as we've talked about in prior episodes, is actually doing okay because of the weak yuan and export demand. But that's not what a university graduate signed up for. Lucas: No, it's not. And that's partly why the government is so sensitive about this number. They stopped publishing it for a year in 2023 because it was politically awkward. Now it's back, and it's worse than ever. Luna: Speaking of what listeners can do — if walking through the economy with us has made something click, or helped you see a trend before it hits headlines, you can support the show at buy me a coffee dot com slash fexingo. It keeps us ad-free and independent. Lucas: Yeah, every bit helps. And we don't run ads, so listener support is really what keeps this going. Anyway — back to the numbers. Lucas: The official urban unemployment rate for 16- to 24-year-olds has not dropped below 18 percent since the data series was restarted in early 2024. That's a long plateau. Luna: And this is happening even as the broader economy grows. GDP is still expanding — not at the old 8 or 9 percent, but maybe 4.5 to 5 percent this year. So it's not a recession story. It's a structural story. Lucas: Exactly. It's about the composition of growth. China has been shifting from manufacturing and construction toward services and consumption for a decade now. But the service sector in China still doesn't generate enough high-productivity, high-wage jobs relative to the number of college graduates. And the property crash made it worse — construction used to absorb a lot of less-educated labor, but that's gone. Luna: So what's Beijing doing about it? I've seen some pilot programs in provinces like Zhejiang where they're subsidizing companies to hire recent graduates. Lucas: Yeah, there are wage subsidies and social insurance breaks for firms that hire young workers. A few cities have started apprenticeship schemes tied to vocational schools. But the scale is tiny compared to the problem. Eleven point seven million graduates a year — you'd need millions of subsidized jobs to make a dent. Luna: And there's a political risk angle here too. Young, unemployed, educated people — that's a recipe for social instability anywhere. Lucas: Absolutely. The government knows it. That's why they're pouring money into 'new infrastructure' — 5G, data centers, EV charging stations — partly to create jobs for graduates. But those are capital-intensive, not labor-intensive. A data center doesn't need that many people. Luna: So the disconnect is that the education system is still geared toward producing the kind of workers the old economy needed — engineers, bureaucrats — but the new economy needs more service-oriented, flexible, entrepreneurial talent. Lucas: That's exactly right. And the curriculum hasn't caught up. There's a mismatch between what universities teach and what the job market actually demands. A lot of graduates end up in jobs that don't require a degree — which is wasteful and frustrating. Luna: And that's a big reason why the stock market is punishing Chinese tech. If the consumer base — especially the young consumer — is underemployed and pessimistic, how fast can e-commerce and luxury goods grow? Lucas: Right. Alibaba and JD are trading at single-digit P/E ratios, which on the surface looks cheap. But the market is pricing in much lower future earnings growth, partly because of this demographic and employment overhang. PDD, which targets more price-sensitive consumers, is holding up a bit better, but it's still down 6 percent in the last five days. Luna: And Baidu, which is more about AI and autonomous driving, is down only 2.3 percent. So maybe the market is discriminating — punishing consumer-facing names more than tech-driven ones. Lucas: I think that's right. Baidu's story is less dependent on Chinese consumer spending in the near term. But NIO, which is up 1.6 percent over the past five days — that's interesting. EV makers might be seen as a long-term play regardless of the cycle, because the government is pushing the transition so hard. Luna: So let's step back. The youth unemployment number is 20.8 percent. That's the highest on record. What's the one thing a listener should take away from this? Lucas: I'd say this: China's youth unemployment is not a cyclical blip. It's a structural problem rooted in the education system, the state-sector preference, and the slow growth of high-productivity private services. It's going to take years of policy reform to fix — if it gets fixed at all. And in the meantime, it's a drag on consumption and a source of political risk that investors can't ignore. Luna: And that's the lens through which we should watch the next few quarters. If the number starts to come down — say below 18 percent — that would be a meaningful signal. If it stays above 20, the pressure on Beijing just keeps building. Lucas: Exactly. We'll be watching. For Fexingo Business, I'm Lucas. Luna: And I'm Luna. Thanks for listening.