Most Chinese companies have resumed operations as the spread of coronavirus is contained. But with domestic demand still depressed and foreign economies slowing, economic activity will remain challenged and likely cause China's workers to face lay-offs or wage reductions.
We estimate there may be job losses of 15.8 million due to COVID-19, which could raise the urban unemployment rate to 8.3 per cent. Job prospects are a particular concern for the 8.7 million students due to graduate from Chinese universities this year.
The urban unemployment rate rose from 5.2 per cent to 6.2 per cent between January and February, implying up to 5 million urban jobs were lost, but we think the loss could be nearly 16 million by mid-year – though a second-half economic rebound could see about 8 million workers absorbed back into the labour market by December.
China's manufacturing sector employed 121 million people or 16 per cent of the labour force in 2018 but the services sector is larger. The retail, hotel and catering industries, which have been especially hard hit by COVID-19, employed 134 million workers or 18 per cent of the workforce. The services sector is more sensitive to changes in growth and we expect it to account for 13.6 million of the lost jobs.
The urban labour supply is due to rise by around 14.8 million this year. In the absence of COVID-19, the increase in jobs would roughly equal the new labour supply but this year there will be a shortfall because of the pandemic.
Some 2.1 million of the new labour supply will be migrant workers from rural areas. The 291 million migrant workforce has gradually switched from manufacturing to service jobs such as retail and catering. While these service jobs have been hard hit, migrant workers have high flexibility to find other employment and move between low-skilled jobs or return to agriculture.
But migrant workers are no longer the primary driver of new labour supply. There will be 8.74 million new university graduates this year and they are far less flexible. They have specialised skills and want higher-paid urban jobs.
This year's number of graduates will be a 400,000 increase from last year, but demand for new graduates is shrinking with some employers cutting recruitment completely.
Applications for post-graduate education have soared to 3.41 million compared with 1.25 million in 2015, suggesting many may want to delay entering the job market – though we estimate less than 1 million will finally enrol. This means most new graduates will be entering a challenging job market.
Engineering a jobs recovery should be the top policy goal for Beijing. The government needs to scale up both fiscal and monetary stimulus, but also make revitalising small- and medium-sized enterprises the main focus of these measures. We expect to see:
- More policy loans to SMEs with preferential interest rates to help prevent a liquidity contraction and defaults
- More corporate tax cuts through larger and more permanent reductions in social-security levies to lower costs
- Regulatory ‘carrots and sticks' to guide state banks to increase lending to SMEs plus lower targeted reserve requirement ratios for lenders
- Wider coverage of credit guarantees, and implementation on a national level, to reduce the need for collateral and lower the cost of borrowing for SMEs
- More aggressive broad-based monetary easing to lift domestic demand through lower borrowing rates and lower deposit rates
- Higher infrastructure spending, using the proceeds of special local-government bonds and issuing special central-government bonds
We estimate that a stronger policy response to lift economic activity could boost job absorption in the second-half of the year to 10.3 million, representing a 65 per cent rehiring rate, with 72 per cent rehired in the services sector.
First published 15 April 2020.
Would you like to find out more? Click here to read the full report (you must be a subscriber to HSBC Global Research).
Disclosure and disclaimerMore, collapsed
The following analyst(s), economist(s), or strategist(s) who is(are) primarily responsible for this report, including any analyst(s) whose name(s) appear(s) as author of an individual section or sections of the report and any analyst(s) named as the covering analyst(s) of a subsidiary company in a sum-of-the-parts valuation certifies(y) that the opinion(s) on the subject security(ies) or issuer(s), any views or forecasts expressed in the section(s) of which such individual(s) is(are) named as author(s), and any other views or forecasts expressed herein, including any views expressed on the back page of the research report, accurately reflect their personal view(s) and that no part of their compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Qu Hongbin
This document has been prepared and is being distributed by the Research Department of HSBC and is not for publication to other persons, whether through the press or by other means.
This document is for information purposes only and it should not be regarded as an offer to sell or as a solicitation of an offer to buy the securities or other investment products mentioned in it and/or to participate in any trading strategy. Advice in this document is general and should not be construed as personal advice, given it has been prepared without taking account of the objectives, financial situation or needs of any particular investor. Accordingly, investors should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs. If necessary, seek professional investment and tax advice.
Certain investment products mentioned in this document may not be eligible for sale in some states or countries, and they may not be suitable for all types of investors. Investors should consult with their HSBC representative regarding the suitability of the investment products mentioned in this document and take into account their specific investment objectives, financial situation or particular needs before making a commitment to purchase investment products.
The value of and the income produced by the investment products mentioned in this document may fluctuate, so that an investor may get back less than originally invested. Certain high-volatility investments can be subject to sudden and large falls in value that could equal or exceed the amount invested. Value and income from investment products may be adversely affected by exchange rates, interest rates, or other factors. Past performance of a particular investment product is not indicative of future results.
HSBC and its affiliates will from time to time sell to and buy from customers the securities/instruments, both equity and debt (including derivatives) of companies covered in HSBC Research on a principal or agency basis or act as a market maker or liquidity provider in the securities/instruments mentioned in this report.
Analysts, economists, and strategists are paid in part by reference to the profitability of HSBC which includes investment banking, sales & trading, and principal trading revenues.
Whether, or in what time frame, an update of this analysis will be published is not determined in advance.
For disclosures in respect of any company mentioned in this report, please see the most recently published report on that company available at www.hsbcnet.com/research. HSBC Private Banking clients should contact their Relationship Manager for queries regarding other research reports. In order to find out more about the proprietary models used to produce this report, please contact the authoring analyst.
- This report is dated as at 15 April 2020
- All market data included in this report are dated as at close 14 April 2020, unless a different date and/or a specific time of day is indicated in the report
- HSBC has procedures in place to identify and manage any potential conflicts of interest that arise in connection with its Research business. HSBC's analysts and its other staff who are involved in the preparation and dissemination of Research operate and have a management reporting line independent of HSBC's Investment Banking business
- Information Barrier procedures are in place between the Investment Banking, Principal Trading, and Research businesses to ensure that any confidential and/or price sensitive information is handled in an appropriate manner
- You are not permitted to use, for reference, any data in this document for the purpose of (i) determining the interest payable, or other sums due, under loan agreements or under other financial contracts or instruments, (ii) determining the price at which a financial instrument may be bought or sold or traded or redeemed, or the value of a financial instrument, and/or (iii) measuring the performance of a financial instrument or of an investment fund