It’s college graduation season in China and the timing couldn’t be much worse for the record-breaking 8.34 million students emerging from university this year. A slowing economy, hobbled further by the trade war, has produced the worst Chinese job market since at least 2015. Among the hardest hit will be the aspiring white-collar workers just now throwing off their caps and gowns. Applicants far outnumber jobs in big cities and salary expectations simply aren’t being met.
In recent days, state media has warned of a “very complicated and severe situation.” That’s an understatement. For a government that derives legitimacy from its ability to deliver prosperity, burgeoning graduate unemployment raises serious questions about just how long China can afford to wage a trade war with the US.
China has struggled to find satisfactory employment for an ever-expanding number of graduates since the late 1990s. At the time, the average level of higher education in China was far below most other developing countries. So the government massively increased spending on institutions of higher learning. Between 1998 and 2004, the number of undergraduates in China increased from 3.41 million to 13.33 million. And the trend continues. In 2018, 28.31 million students were enrolled in undergraduate programs in China.
That growth has brought undeniable benefits. More widespread higher education has improved social mobility and led to the development of thriving entrepreneurial clusters around universities in cities such as Beijing and Shenzhen, among other benefits.
Unfortunately, it’s also had drawbacks. Between 2000 and 2005, the unemployment rate among college graduates increased 9 percent, largely due to the poor quality of the education students received and a mismatch between curricula and the skills demanded by employers. Ten years later, the unemployment rate had moderated: Only 8 percent of graduates were unemployed six months after graduating. But of those who found jobs, fully one-quarter earned less than the average migrant laborer, underlining a continued skills mismatch. Chronic underemployment remains a persistent problem.
This year, the situation is even grimmer, with actual unemployment looming for many. During the first three months of 2019, the ratio of job vacancies to job seekers declined to 1.68, from 2.38 in the fourth quarter of 2018. Zhaopin.com, China’s leading online job recruiter, reported that its number of job listings declined 7.6 percent during the first quarter, while applications increased 3 percent.
The slowing economy isn’t only impacting export-oriented factories. One recent survey of approximately 40 firms that ordinarily hire college graduates found that 80 percent wouldn’t be increasing headcounts in 2019. Well-paying financial firms were prominent among them.
Meanwhile, even before the latest US curbs on Huawei Technologies raised the specter of a tech cold war, Chinese technology companies were drastically cutting back as well. In February, ride-sharing giant Didi Chuxing announced it would slash around 15 percent of its workforce; online retailer JD.com is reportedly cutting around 12,000 jobs and revoking job offers. Indeed, accounts of rescinded offers to graduates and industry job cuts are rife on social media and in the mainstream press.
The bleak employment picture hasn’t yet driven graduates into the streets. Aside from grumbling on social media or settling for less-than-ideal jobs, many are opting to ditch the dream of working in one of China’s big cities for lesser-paying careers in smaller metropolises, where local governments are subsidizing housing and other expenses for transplants. Others are going back to school: A record 2.9 million people took China’s graduate school entrance exams in December, up 21 percent year-on-year.
Still, the government can’t count on their forbearance indefinitely: As job seekers come to terms with their shrinking employment possibilities, they’re inevitably going to look for scapegoats. Authorities are responding with emergency measures, including refunds of unemployment insurance to companies that don’t lay off workers, subsidies for entrepreneurs and, as of this week, a Cabinet-level working group to address the employment crisis.
These steps may help cushion the blow of the trade war. And, in the long run, China will need a better-educated work force if it is to fulfill its ambitions to dominate the industries of the future.
But, if the government is serious about boosting the prospects of its graduates, it also needs to invest more in vocational and polytechnic education, while working to improve internships and other skills training programs that prepare China’s graduates for the jobs that employers are actually offering. While China may not be able to control the course of the trade war, it can at least train its soldiers more effectively.
Adam Minter is a Bloomberg Opinion columnist. -- Ed.