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China’s economically active population is shrinking; it fell 34mn (4%) over 2015-24. This is likely due to and a cause of real wage growth slowing to 3% YoY, vs. 8-9% annually over 2011-22. Monthly indicators of hiring remain subdued. High-tech manufacturing is unlikely to absorb the 15mn annual addition, keeping wages weak, and reducing prospects of raising the retirement age. Weak income growth compounds the balance sheet stress from a weak housing market: consumption may remain depressed. China’s dumping in export markets is thus a continuing longer-term risk. It may retain its labor-intensive exports even as it gains global share in capital intensive, high-tech sectors.
China’s slow-moving jobs crisis: participation falls as real wage growth slows
Between 2015-24, China’s economically active population shrank by 34mn (-4%), vs. a 25mn (2%) rise in total population. Now only 54% of population is active, vs. 58% in 2015. Worryingly, demand for labour fell faster, as real wage growth has slowed to 3% YoY (Fig 3), with urban unemployment higher than in 2019. From handily beating job-creation targets, cities are now barely meeting them. Higher-frequency indicators on hiring intentions and PMIs have been consistently weak. The remarkably low and stable headline unemployment rate masks these slow-moving jobs crisis.
High-tech manufacturing unlikely to absorb ~15Mn new entrants annually
Between 2019 and 2022, the number of people pursuing higher degrees and thus out of the job market rose sharply. This cohort is now re-entering the workforce, adding 10-12 Mn workers annually. For those who drop out of education sooner, an additional 4-5 Mn of lower-skill jobs will be needed annually. China’s policy push towards high-tech manufacturing is unlikely to create sufficient demand for these joiners, in our view. With the number of jobs not keeping pace with new joiners, and per unit employment in industry falling consistently since 2011, there is limited scope to raise the retirement age.
Consumption to remain weak; China retaining share in labour-intensive exports
A shrinking workforce and falling wage growth compound the problem of balance-sheet pain for households from a weak housing market. Prospects for consumption thus continue to look bleak, further elevating the risk of Chinese dumping in export markets. China’s trade surplus in manufactured goods is already over US$ 2 Tn, with much of the post-2019 growth driven by rising exports of autos, machines and heavy transport equipment. However, its trade surplus in labour-intensive goods such as textiles, plastics and consumer goods has also remained stable or expanded, suggesting that growth in capital-intensive, high-tech manufacturing is not in lieu of lower competitiveness in labour-intensive sectors.
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