SHANGHAI - High hopes were pinned on China’s reopening from the Covid-19 pandemic as a remedy for the country’s slowing economy.

But while growth has rebounded somewhat, joblessness among young people has soared, a worrying development for a Communist Party obsessed about social stability and for the economy’s longer-term prospects.

The youth unemployment rate hit new highs in 2023 – four times the national level – and there are signs it could get even worse as millions of new graduates enter the labour market.

While Beijing is trying to encourage public and private hiring, and an eventual economic recovery should create more jobs, underlying trends could keep youth unemployment relatively high for some time.

1. How bad is the problem?

The unemployment rate for 16- to 24-year-olds in China’s urban areas hit 21.3 per cent in June, the third consecutive month above 20 per cent and the highest level in official data going back to 2018.

That is roughly seven million young people out of work.

In the United States, the jobless rate for the 16-24 age group is just 7.5 per cent, while in the euro zone, the jobless rate for people under 25 is 13.9 per cent.

In India, which has a similar-sized population as China, the youth unemployment rate was estimated by the World Bank at 17.9 per cent in 2022.

The situation in China is only going to get worse, though, with almost 12 million college graduates expected to hit the job market in 2023.

2. Why is China’s rate so high?

It is a combination of cyclical factors – linked to the slowdown in the economy – and longer-term structural trends.

Young people tend to dominate jobs in services sectors, such as restaurants and retail, which took a major hit during the pandemic when China used stringent controls such as citywide lockdowns and quarantines to curb Covid-19 infections.

Economic growth slowed to 3 per cent in 2022, the second-weakest pace in more than four decades.

Beijing’s regulatory crackdown in the education, technology and property sectors also led to large-scale job losses in recent years, making those areas less viable options for young, ambitious job seekers.

Beyond those drivers, unemployment is also rising because of changes in the population: China has more people graduating from universities now than ever before, and many are reluctant to take on factory jobs with long hours and low pay.

There is also a mismatch between the skills that job seekers have and what businesses require.

High-tech skills, in particular, are in short supply.

Goldman Sachs also points to, for example, a 20 per cent increase in graduates in education and sport in the three years until 2021, while hiring demand in that sector slumped.

3. What does it mean for the economy?

Rising joblessness means less income for young people and reduced spending on goods such as mobile phones or entertainment and travel, which curbs economic output.

While it is difficult to quantify, research suggests young people in China are an important driver of overall consumption in the economy, and are big luxury spenders too.

That said, the 16-24 age group makes up about 7 per cent of China’s urban labour force, according to Citigroup, and so is not as big of a driver of consumer spending as older groups.

High unemployment affects confidence in the economy and could weaken productivity if it is prolonged.

In China, it is also driving social disaffection among young people, prompting many to drop out of the rat race completely in a phenomenon known as “lying flat”.

And it risks stoking social instability if young people become more angry and frustrated about their lack of opportunities. 

4. What’s the government doing about it?

Beijing is pushing state-owned companies to hire more graduates, giving subsidies to businesses to recruit young people and trying to boost vocational education in order to address the skills mismatch in the economy.

Vice-Premier Ding Xuexiang in May asked state-owned companies to hire at least as many graduates in 2023 as they did in 2022.

Ultimately, though, job creation will depend on stronger growth in the economy, especially in the services industries, where young people dominate.

While consumer and business activity has rebounded since China’s reopening, spending is not back to pre-pandemic levels yet.

Private businesses will need to feel more confident about growth prospects before they invest and expand their workforces – yet there are plenty of reasons for them to stay cautious, including the global slowdown, rising tensions between the United States and China especially in advanced technologies, and President Xi Jinping’s push for more Communist Party control over the economy. BLOOMBERG