Stratfor's 2019 Annual Forecast included the expectation that China would offer direct subsidies, increase infrastructure spending and generate credit in an effort to weather threats to its economy and mitigate unemployment. Beijing and Washington have begun a temporary trade truce, but the threats to China's economy remain in place. As the Chinese economy slows, Beijing is taking steps to combat unemployment.
China's leadership has prioritized employment as the country prepares to enter a period of prolonged economic difficulty. On Dec. 5, the country's top economic planner, the State Council, unveiled a slew of policies designed to support employment in a paper that includes a plan to refund 50 percent of unemployment insurance premiums — which currently account for 2 percent of total payroll — to companies that forgo layoffs or keep them to a minimum. Other measures include offering subsidies and allowances to enterprises and individuals engaged in professional training, with a special focus on people aged 16 to 24. And to shore up confidence among private businesses, Beijing will work to increase access to government-guaranteed loans and subsidies for small businesses and entrepreneurs.
According to the South China Morning Post, the paper had been drafted Nov. 16 and was passed on to local governments, which were instructed to draft their own versions within 30 days. Notably, the export-oriented Guangdong province released its plan a day early.
Why It Matters
Nothing worries Chinese leaders more than unemployment. Employment levels are, without doubt, the most-watched factor when Beijing calculates its economic policies. However, the country's economic slowdown and the effects of its trade war with the United States could reduce corporate hiring and increase layoffs, which would ultimately threaten social stability. Although China is now significantly less dependent on exports to maintain employment levels than it was when the financial crisis struck in 2008, the recently released document signals the country's growing unease with the risks that growing unemployment would pose.
China has no reliable, nationwide data on overall unemployment. However, several indexes and local surveys recently suggested that employment levels are slipping, particularly in export regions and the private sector. China's Institute for Employment Research, for example, has reported that hiring demand in export industries fell by more than half in the third quarter of 2018. Coastal regions that are dependent on exports — such as Guangdong, Jiangsu, Shanghai and Fujian — are expected to take further hits even after bearing the brunt of the latest round of U.S. tariffs. And large, private companies such as JD.com and Huawei are thought to have considered layoffs. These developments have added to concerns over growing stress on the private sector, which accounts for a large majority of the country's employment.
Beijing has increased infrastructure spending and extended more credit in recent months. However, high debt accumulation and a fragile housing market have limited China's ability to assuage economic pain with a massive flow of credit. Instead, Beijing has increasingly turned to fiscal tools such as direct subsidies and tax reduction, while also pursuing avenues to channel funds toward private businesses.