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China and labor disparity: A new challenge

Xi Jinping

Chaotic movement of the productive young and the ageing skilled labor force in China spells economic uncertainty the government appears unclear how to handle.

The Covid times are behind them, but they have somehow triggered diffidence among the workers. Young people are unwilling to live in big cities, including in Shenzhen, which is called the city of youth. Many are willing to migrate back to their rural homes.

Unmindful of all this, the government, too, has rolled out programs to bring productivity to the rural areas by incentivizing people move back to the villages. It is really a case of the left hand not knowing what the right does.

Amid all this, joblessness is playing spoil sport. Local governments are trying to tackle joblessness. Guangdong province has come up with a plan to send 300,000 young people to rural villages by the end of 2025 to revitalize local economies. Of these participants, 10,000 are slated to work in agriculture, while another 10,000 will receive help setting up new businesses.

Sluggish manufacturing is one reason for the soft labor market. China’s industrial production in January to March grew at a 3.0% pace, a slowdown from an annual expansion of 3.6% in 2022. With people worried about their jobs, sales of durable goods such as cars and home appliances are stagnant.

Shenzhen, home to the country’s first special economic zone, may have begun to lose its luster. Its population decreased for the first time in 2022, in part because of the Covid-19 pandemic, but also as a result of changes in local government policies.

The population contraction will ease some of Shenzhen’s problems, such as traffic congestion and high rents, but the city’s vaunted growth — which once enticed young people from all over China — is no longer the main driver.

Known as the “city of young migrants,” the average age of residents was 32.5 years in 2020 — well below the national average of 38.8. That ready supply of motivated young people paved the way for big, innovative companies, including Huawei Technologies, BYD and Tencent Holdings. By 1997, Shenzhen’s population had hit 5 million, and exceeded 10 million in 2010 — increasing each year thereafter by about 5%.

That all changed in 2022 when the population dropped 0.1% to 17.66 million. The fall was attributed to the central government’s stringent zero-Covid policy. With the virus in the back mirror, Shenzhen’s population might have been expected to recover in 2023, but local government policy is not helping. Younger people used to be attracted by Shenzhen’s relatively lax registration requirements to get on various important social ladders. In China, census registries play vital roles in access to housing and education. Now everything has tightened up.

The final nail was exorbitant rents – thrice higher than in neighboring cities – which the young cannot afford to pay. So they are leaving.

In other cities, over the past year, a section of young people across China have been ditching white-collar jobs for blue-collar roles as baristas and cashiers. They’ve been sharing photos and videos of their new roles en masse on Xiaohongshu, China’s answer to Instagram. The hashtag “my first physical-work experience” has more than 30 million views as of June 12. They want to relax, earn what is necessary to live happily, and do not want to get into the competitive rat race of urban jobs. This could prove a jolt to productivity in the services sector in particular, but nobody is caring.

“From fast-food-restaurant owners, cleaners, waiters, to pet grooming, young people try to regain control of their lives and inner order through these ‘mindless’ manual tasks,” a description of the hashtag read.

Many of these people write in the captions about their decision to ditch white-collar jobs, and there’s a clear thread between many of them: Despite having attained highly coveted office jobs, they are ditching them for “mindless” menial work and a better sense of fulfillment.

Analysts say a lot of young people might feel disappointed about their jobs because companies are not hiring them for a job, but they’re hiring you to operate a computer on a desk.

Last but not the least, reverse migration is another headache for the government. It is expected to pick up pace in the near future partly because the workers cannot simply afford city housing and do not have access to city healthcare. Millions of Chinese people did not go back to urban areas for work after the coronavirus pandemic last year, official data show. As of the end of March, the statistics bureau said there were still 2.46 million fewer migrant workers than the same period in 2019.

Already, data show that rather than traveling to China’s biggest cities like Beijing or Shanghai, more migrant workers are staying closer to home, within the same province. Government policy has contributed to the trend as well. As the state loosened its grip on the economy in the last few decades, tens of millions of Chinese people pursued jobs in big cities such as Beijing and Shenzhen. Local governments built up subways and other urban infrastructure to support growth. However, many migrants faced tough working conditions as laborers in factories or, more recently, couriers for China’s e-commerce giants. A stringent residency system — called “hukou” — prevented migrants from accessing public health care and schools, or buying property in their city of work. The flood of people contributed to a drain on local resources, prompting authorities to evict migrants.

Many people outside big cities are taking jobs in this so-called digital economy, since they can work remotely for companies that may still be based in urban downtowns.

The impact of these various kinds of movement of the worker and labor force is showing on the business and industry sectors. With youngsters rejecting grinding factory work, the resultant labor shortage is frustrating manufacturers.

Factory bosses say they would produce more, and faster, with younger blood replacing their ageing workforce. But offering the higher wages and better working conditions that younger Chinese want would risk eroding their competitive advantage. And smaller manufacturers say large investments in automation technology are either unaffordable or imprudent when rising inflation and borrowing costs are curbing demand in China’s key export markets.

According to western media reports, economists say market forces may compel both young Chinese and manufacturers to curb their aspirations. “The unemployment situation for young people may have to be much worse before the mismatch could be corrected,” said Zhiwu Chen, professor of finance at the University of Hong Kong in an interview to a media outlet.