China’s Shadow Unemployment Rate Is Higher Than Official Numbers

China’s Shadow Unemployment Rate Is Higher Than Official Numbers

In a worrying sign that China’s economy may continue to slow down, a survey released by the South Western University of Finance and Economics in Chengdu suggests that the real unemployment rate in China has ticked above 8 percent. With exports dropping and China’s construction industry slowing down in the face of what many observers believe may be a real estate bubble, this rising unemployment rate may point to deep underlying problems in the world’s second largest economy.


The official unemployment rate in China is only about 4%, however, the Chinese government has long been known for creative accounting and figuring out ways to inflate (or deflate) numbers. The survey released by South Western University of Finance and Economics suggest an unemployment rate of just over 8% in June of 2012. The survey does find, however, that younger skilled workers are faced with an unemployment rate of only 4.1%, suggesting that demand for skilled labor remains strong.

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Perhaps most worrisome, layoffs are rising sharping among the large migrant population that China has long relied on to fuel its export-led manufacturing industry. Traditionally, China has relied on waves of migrants from rural areas to staff its low-paying factories and workshops. There are an estimated 160 million of these migrant workers in China and the unemployment rate has skyrocketed from 3.4% to 6%. Pay has also stagnated after years of rapid growth. Situated far from their families and personal social networks these migrant workers are especially vulnerable to an economic downturn.

At the same time inflation has continued to rise in the country. Housing in major cities is now unfordable for the masses even in the face of a looming property bubble and government efforts to bring prices down. Construction has slowed to a halt with the glut of unused property. Further food costs and other essentials are surging, creating huge pressures on working class families who have already been struggle to move up the social ladder.

An economic slow down could also ramp up pressure on the increasingly beleaguered national government. While the Communist Party remains firmly in control of the massive Asian nation pressures are mounting. In 2010, even as the Chinese economy boomed, there were over 180,000 protests and civil disturbances. As more and more people are laid off and social media communication continues to proliferate the risk of growing protests, in terms of both numbers and size, will continue to increase.

During the last global recession the Chinese government launched a massive stimulus plan in order to make up for lost exports. Much of the money spent through the stimulus plan was wasted on inefficient and often unneeded infrastructure projects, with some of the money allegedly being siphoned away throw corruption. Worse, local governments took out large amounts of loans and it now seems unlikely that they will be able to pay off said loans in full. The Chinese government is now trying to sustain high growth but is being more cautious with its stimulus packages, which could restrict efforts.

Further, while the Chinese government has been trying to reduce its dependency on exports and has been attempting to build a domestic economy that can be driven by consumer consumption. With exports to the E.U. plummeting China has become especially reliant on the United States for markets. The U.S. alone is estimated to account for more that 300 billion dollars worth of exports. Now with the U.S. economy slowing and increasing domestic pressures to close the trade gap, China is also facing the serious risk of dropping exports to the United States.

With well over a billion people and functioning as one of the world’s most important manufacturing hubs, any developments in China could be felt throughout the world. Given that the U.S. economy has been slow to recover and that the European Union is sitting on the brink of collapse many observers have been hoping that the Chinese could fuel an Asian led economic expansion. Those hopes seem to be dimming by the day as more and more indicators are pointing to an economic slowdown in the so-called Middle Kingdom.

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