Vast numbers of unemployed will undermine China's recovery

People cross a bridge at the Central Business District in Beijing on April 22, 2020. PHOTO: REUTERS

BEIJING (BLOOMBERG) - Millions of Chinese people are being thrown out of work by the collapse in global demand and a slow restart of the domestic economy. A lack of clarity about exactly how many is making it harder to gauge the chances for recovery.

From the amount of coal burned to the length of traffic jams in Beijing, signs are emerging that an industry-led rebound is underway. More loans are being extended, and auto sales are up.

But whether those signs can translate into a domestic economy strong enough to withstand the downward forces coming from the stopped global economy depends a lot on whether factories and shops can keep workers employed and able to spend their earnings. As China heads toward its annual political centrepiece next week, the true state of the labour market is obscured by incomplete official data.

The surveyed urban unemployment rate, due for release on Friday (May 15) along with April industrial production and retail sales data, leaves out about half of the nation's workforce. Though the official rate is forecast to decline to 5.8 per cent for April, analysts from BNP Paribas said the real unemployment rate including non-urban residents could have reached 12 per cent in the first quarter, and as many as 130 million people could have suffered some kind of job disruption.

The outlook for the labour market is "not optimistic" as the recovery in some sectors will have to wait until a global reopening, and the official jobless data leaves a considerable part of the workforce off the radar, said Liu Peiqian, a China economist at Natwest Markets in Singapore. "The current recovery is largely policy-driven. The repair pulled by the economy's inner strength hasn't started."

UBS Group is forecasting the worst job market for China in more than two decades, with the number of jobs shrinking by more than 10 million this year. That's in contrast to the usual government target to create a net increase of at least 10 million jobs a year.

Aside from job creation being a key political concern for the Communist Party, it has knock-on effects through the economy.

"We think weaker employment and income growth will weigh on consumption," UBS economist Wang Tao wrote in a recent note. While the impact will likely be temporary and recover from the second half, Wang still expects private consumption to contract in 2020.

If that's the case, it'd mean the nascent recovery seen in energy use and infrastructure-related sectors can hardly last, indicating more stimulus will be necessary to blunt the shocks. The government will offer some clarity on that front at the upcoming National People's Congress meeting starting from May 22.

Bloomberg reported the government is considering dropping a numerical growth target, giving policy makers more freedom in setting the size of stimulus.

This month the People's Bank of China pledged to roll out "more powerful" monetary stimulus, and fiscal authorities are expected to issue a record amount of special-purpose bonds. The latter is expected to help drive infrastructure investment. Data for fixed-asset investment in the first four months of the year is also due Friday.

"The recovery so far has been largely driven by supply," Larry Hu, head of China Economics at Macquarie Securities Ltd in Hong Kong, wrote in a note. "It might continue for another couple of months, but the demand headwinds, especially from exports and deflation, could cause the recovery to stumble later."

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