Chinese workers in the manufacturing industry geared to the export market face a tough time this year. Photo: STR / AFP

In the labyrinth of China’s economic numbers, fears are growing about rising unemployment.

Data released on factory activity this week illustrated that the world’s second-largest economy is gradually recovering from the paralysis inflicted by the Covid-19 pandemic.

But the true cost of the crisis is only just starting to emerge.

“We should still pay attention to the pressure on employment. Top policymakers have repeatedly stressed the importance of expanding employment channels. For some time to come, increasing employment will remain an arduous task,” Wang Zhe, a senior economist at Caixin Insight Group, said after the private Caixin-Markit Manufacturing Purchasing Managers’ Index jumped to 51.2 last month.

To put that into perspective, it was the fastest pace of growth since December and a marked improvement on May’s 50.7 figure. 

Yet along with the official PMI that was released on June 30, it highlighted the government’s worst nightmare of spiraling unemployment.

“Many countries struggle with classifying workers not truly employed right now, yet not technically fired. Beijing’s variation on the theme is to report, as always, moderate and stable urban unemployment with [a] vague reference to migrant joblessness,” China Beige Book reported in its Second Quarter 2020 study.

“Far fewer CBB respondents acknowledged firing workers in Q1 than hiring in Q4, which was extremely unlikely unless furloughs (featuring migrants) weren’t counted. On top of that, Q2 saw hiring return, but it could be rehiring of previously employed workers never tagged as laid off,” it said after releasing the findings of a poll from more than 3,300 companies.

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Falling wages and lower overall costs helped boost the official PMI. Unveiled by the National Bureau of Statistics earlier this week, it showed that factory activity picked up again in June, edging higher at 50.9 compared to 50.6 in May. 

The non-manufacturing PMI also increased slightly to 54.4 from 53.6 with a figure above 50 classified as expansion.

Still, export demand remained weak, while domestic consumption was sluggish.

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“We still face uncertainties. [But] recovery momentum of the manufacturing sector was further consolidated, stimulating related business activities in the service sector,” Zhao Qinghe, a senior statistician at the National Bureau of Statistics, said.

Getting to grips with rising urban unemployment, which excludes at least 290 million migrant workers, has become the overriding priority for Beijing.

Official data showed it was 6% in April compared to 5.9% in the previous month but down from the record high of 6.2% in February. Moreover, the jobless sector is a notoriously sensitive subject to the upper echelons of the ruling Communist Party

“No job means no income and no wealth creation. Every effort must be made to prevent massive lay-offs,” Premier Li Keqiang reiterated at the National People’s Congress in May.

“Variations in economic growth do not matter that much, as long as employment stabilizes this year,” he added.

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Creating 60% of the country’s GDP growth, the private sector accounts for around 80% of urban jobs and includes legions of small- and medium-sized companies. 

In a move to prop up businesses, President Xi Jinping’s administration has rolled out a raft of measures, including cutting “the reserve requirement ratio for small and medium-sized banks” so they can “offer loans to SMEs at favorable interest rates.”

Li has also put in place other incentives.

Even so, a report released in April by The Economist Intelligence Unit predicted that the “urban” jobless rate will hit 10% this year compared to 3.6% in 2019.

“We estimate at least an additional 22 million urban workers will lose their jobs in 2020, pushing up the unemployment rate to around 10%. Around a further 250 million could experience wage cuts in the range of 10 [to] 50%,” the EIU said.

Indeed, that appears to have already happened amid the specter of unemployment.