China: No more youth unemployment (data)
With the economy facing mounting challenges as weak data on retail sales, industrial output and investment growth roll in, Beijing responded by unexpectedly cutting key interest rates to bolster activity, rattling Asian and global markets. And bundled in at the same time, it decided to suspend the release of youth unemployment figures, having hit a record 21.3% in June, a victim of China's economic slowdown and rapidly fading post-zero-Covid rebound. The National Bureau of Statistics (NBS) stated that age group-specific unemployment data would no longer be released, citing the need to improve labour force survey statistics. The move also coincided with the release of weak economic indicators for July, including a growth rate of 2.5% year-on-year in retail sales, down from 3.1% in June. With overall unemployment at 5.3% in July and industrial production growth at just 3.7%, China faces massive challenges in achieving its official 5% growth target for the year.
..... ▷ Last month, a Chinese economics professor claimed in anarticle in Caixin, a respected Beijing-based financial news organisation, that the country's youth jobless rate could have reached almost 50% in March compared to official data of 19.7%. This sparked a fierce debate about the soft labour market and also, by implication, official data accuracy. Professor Zhang Dandan from Peking University estimated it could have been as high as 46.5% if 16 million non-students "lying flat" at home or relying on their parents were included. Already, anyone who works a bare minimum of 1 hour a week qualifies as employed. The official youth jobless rate further rose to a record 21.3% in June (and the article has since been taken down.)
..... ▷ China's economy has struggled to stabilise since the pandemic, with weakness or stiffer regulation in sectors like manufacturing, tutoring, property and online platform sectors disproportionately affecting younger workers and the well-educated. Longer term, the nation's transition from less of a debt-driven, construction, investment and export-based economy to one more balanced by domestic consumers and services should, in theory, work in favour of younger workers, though progress on that path remains uncertain, particularly as China faces what may turn out to be an extended bout of deflation.
..... ▷ Nearer term, investors are worried about worsening consumer sentiment and, increasingly, potentially disastrous contagion effects from missed payments on shadow banking trust products from the $3 trillion trust sector's massive exposure to real estate developers. In particular, Zhongrong International Trust's recent missed payments have sparked fears of a cascade of further trust product defaults. Trust firms operate in China's shadow banking sector, outside many of the rules governing commercial banks, and unlike most asset management companies elsewhere, they generally just channel the money invested by individuals and companies in wealth products sold by banks straight to real estate developers as well as borrowers and individuals in other sectors.
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Market Roundup 16-August-2023
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China: No more youth unemployment (data)
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MoneyFitt Ka-ming OP : Defaults on wealth management trust products in China could have significant repercussions for the broader economy due to the potential impact on individual investors' consumption. The hope is that potential contagion just manifests as softer consumer and business confidence, keeping growth subdued, rather than some kind of systemic problem, but when contagion starts in the shadow banking system, it's hard to tell what the end result might be (viz subprime lending and the 2008 GFC!)
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MoneyFitt Ka-ming OP : Half of the young population unemployed means only half of young people in the economy working to support a rapidly ageing (and overall shrinking) population!