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China’s Gen Z Is Dejected, Underemployed and Slowing the Economy – BNN

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(Bloomberg) — The most educated generation in China’s history was supposed to blaze a trail towards a more innovative and technologically advanced economy. Instead, about 15 million young people are estimated to be jobless, and many are lowering their ambitions. 

A perfect storm of factors has propelled unemployment among 16- to 24-year-old urbanites to a record 19.3%, more than twice the comparable rate in the US. The government’s hardline coronavirus strategy has led to layoffs, while its regulatory crackdown on real estate and education companies has hit the private sector. At the same time, a record number of college and vocational school graduates—some 12 million—are entering the job market this summer. This highly educated cohort has intensified a mismatch between available roles and jobseekers’ expectations.  

The result is an increasingly disillusioned young population losing faith in private companies and willing to accept lower pay in the state sector. If the trend continues, growth in the world’s second-largest economy stands to suffer. The sheer number of jobless under-25s amounts to a 2% to 3% reduction in China’s workforce, and fewer workers means lower gross domestic product. Unemployment and underemployment also continue to impact salaries for years—a 2020 review of studies reported a 3.5% reduction in wages among those who had experienced unemployment five years earlier.

More young people taking roles in government may leave fewer jumping into new sectors and fueling innovation.

“The structural adjustment faced by China’s economy right now actually needs more people to become entrepreneurs and strive,” said Zeng Xiangquan, head of the China Institute for Employment Research in Beijing. Lowered expectations have “damaged the utilization of the young labor force,” he added. “It’s not a good thing for the economy.”

Pre-pandemic, 22-year-old Xu Chaoqun was prepared for a career in China’s creative industries. But a fruitless four-month job hunt has left him setting his sights on the state sector. “Under the Covid outbreak, many private companies are very unstable,” said Xu, who majored in visual art at a mid-ranked university. “That’s why I want to be with a state-owned enterprise”.

Xu is not alone. Some 39% of graduates listed state-owned companies as their top choice of employer last year, according to recruitment company 51job Inc. That’s up from 25% in 2017. A further 28% chose government jobs as their first choice. 

It’s a rational response in a pandemic-hit labor market. All workplaces have been hit hard by China’s snap lockdowns and strict quarantine measures, but private companies were more likely to lay off workers. Beijing’s main employment-boosting policy has been to order the state sector to increase hiring.

President Xi Jinping may be relieved that the country’s unemployed youth are trying to join the government rather than overthrow it. During a June visit to a university in the southwestern China’s Sichuan province, he advised graduates to “prevent the situation in which one is unfit for a higher position but unwilling to take a lower one.” He added that “to get rich and get fame overnight is not realistic.”

The message is getting through: Graduate expectations for starting salaries fell more than 6% from last year to 6,295 yuan ($932) per month, according to an April survey from recruitment firm Zhilian. State-owned enterprises grew in appeal over the same period, the recruiter said. 

But lower income expectations and talent shunning the private sector are likely to lower growth in the long term, challenging the president’s plan to double the size of China’s economy from 2020 levels by 2035—by which point it would likely overtake the U.S. in size.

The phrase “tang ping”—“lying flat”—spread through China’s internet last year. The slogan invokes dropping out of the rat race and doing the bare minimum to get by, and reflected the desire for a better work-life balance in the face of China’s slowing growth. As the unemployment situation has continued to worsen, many young people have adopted an even more fatalistic catchphrase: “bailan,” or “let it rot.”

Read More: From the Great Resignation to Lying Flat, Workers Are Opting Out

That concept is “a kind of mental relaxation,” said Hu Xiaoyue, a 24-year old with a psychology masters degree. “This way, even if you fail, you will feel better.”  When Hu started looking for work last August, she found it easy to land interviews. “But when it came to spring, only one in 10 companies would offer an interview,” she said. “It fell off a cliff.”

China’s state-owned enterprises (SOEs) aren’t all unproductive behemoths. But the weight of economic evidence suggests they are, on the whole, less efficient and less innovative than privately-owned companies. China’s economic boom has coincided with a falling share of SOE jobs in urban employment—from 40% in 1996 to less than 10% pre-pandemic. That trend could now go into reverse.

Last year, China launched a regulatory crackdown on formerly high-flying sectors dominated by private companies that previously attracted ambitious young people. Internet companies were hit with fines for monopolistic behavior, real estate businesses were starved of financing and the private tutoring sector was almost entirely shuttered.

Read More: Xi Jinping’s Capitalist Smackdown Sparks a $1 Trillion Reckoning

Regulatory filings show that China’s top five listed education companies reduced their staffing by 135,000 in the last year after the crackdown. The largest tech companies have kept their headcounts stable, and Zhilian says that there were more tech jobs advertised in the first half of this year than the same period in 2021. Even so, the sector’s allure has faded.

A graduate of the highly ranked Central University of Finance and Economics in Beijing, Hu was set for the tech sector—she interned at three internet companies including video-sharing giant Beijing Kuaishou Technology Co. But she has changed her mind. “People who are going to work for Internet companies are all worrying about themselves because they feel like they could be fired any time,” she said.

Instead, Hu landed a position at a research institute within state-owned China Telecom Corp. “The working hours of my future job will be 8:30 a.m. to 5:30 p.m., and the workload will be quite light. Internet companies are too consuming,” she said.

As well as the movement of talent towards state-owned companies, there’s another mechanism at work that can damage long-term growth. Studies by from the US, Europe and Japan have shown that the longer young people are unemployed at the start of their careers, the worse their long-term incomes, an effect known as “scarring.”

That’s the risk facing Beiya, who was laid off from an e-commerce company this year. The 26-year-old, who gave only one name because she feared that talking about losing her job could hit her employment prospects, missed out on a role with TikTok parent company Bytedance Inc. because of her limited experience.

“I’m a good candidate with potential but they want to see me in two years,” she said. “But how can I get the experience if no one gives me a job now?”

The state sector already employs around 80 million people and the figure could grow by as much as 2 million on a net basis this year, according to Lu Feng, a labor economist at Peking University. “But compared with total demand for jobs, it’s still relatively small,” he said. “We still need private firms to hire.”

That will only happen if the economy grows. To meet its employment goals, economists say China needs GDP to increase between 3% and 5% this year. Economists are predicting growth closer to 4%—with the outlook highly uncertain due to the prospect of more lockdowns to contain the spread of the coronavirus. “Lack of clarity on an exit strategy from the Covid-Zero policy makes companies wary of hiring,” said Chang Shu, Bloomberg Economics’ chief Asia economist.  

Beijing has launched a version of the job-support programs seen in Europe during the pandemic, offering tax rebates and direct subsidies to companies who promise to retain workers. But the amounts involved are small: The incentive for hiring a new worker is just 1,500 yuan. Provincial subsidies for graduates who start businesses are also small—just 10,000 yuan in the prosperous Guangdong region.

 

Even if China can return to strong growth in the second half of this year, the youth unemployment problem will persist—the rate has been rising since 2017, reaching 12% pre-pandemic. Economists attribute that to two factors: urbanization and a mismatch between the education system and employers’ needs.

The hundreds of millions of workers who moved from the countryside to cities used to return to their villages during labor market slumps, acting as an economic shock absorber. Now, younger migrants increasingly stay put when they lose their jobs, pushing up urban unemployment.

“A lot of them are not even raised in rural areas. So they regard themselves as urban people,” says Peking University’s Lu. “The constraints for the government have changed substantially, it’s tougher than in the past.”

Second, the annual number of graduates in China has increased tenfold over the last two decades—the fastest higher-education expansion anywhere in the world, at any time. The share of young Chinese people attending college is now almost 60%, similar to developed countries.

The number of vocational graduates lags far behind those receiving academic degrees. Such is the stigma around vocational education that students rioted last year when told their university was being rebranded as a vocational school. Highly educated young people are rejecting factory jobs. “That’s the basic matching problem. It is huge in this country,” said Lu.

That’s left manufacturers complaining about shortages of skilled technicians. “There are not a lot of people applying for those jobs, such as electrician or welder,” said Jiang Cheng, 28, an agent for electronics factories in central China.

Other sectors are oversubscribed. According to a 2021 study of 20,000 randomly selected jobseekers on Zhilian’s website, some 43% of the job applicants wanted to work in the IT industry, while the sector accounted for just 16% of recruitment posts.

Half of jobseekers had a bachelor degree, but only 20% of jobs required one. “There is now compelling evidence of over-education,” the study’s authors wrote, warning that the misalignment “could have profound influences on both individuals and the nation.”

In the longer term, it’s possible that government intervention may get the private sector hiring again, while education reforms and market forces can smooth the misalignment in the labor market. 

China is easing its regulatory campaigns, and a vocational education law passed this year aims to improve standards. A study by Wang Zhe, an economist at Caixin Insight, found college majors that attracted a wage premium in 2020 became more popular in 2021. As applicants’ academic choices adapt to demand in the jobs market, mismatches stand to ease. 

But the share of graduates from China’s nine top-ranked universities joining the private sector has fallen since the pandemic, according to research from Hong Kong’s Lingnan University. That suggests ideological shifts, and not just market forces, are at play. Some graduates at top universities are adopting “ cadre style,” according to online forums where they seek tips on where to buy the black zippered windbreakers favored by Xi.

Even in the current environment, Kay Lou, 25, would be a leading candidate for any number of private-sector jobs. She has a masters in law from top-ranked Tsinghua University and has interned for a legal firm, an Internet giant, a securities brokerage and a court.

In the end, she won a government position in Zhejiang province—where some roles attract as many as 200 applicants.

“I felt my work wasn’t meaningful,” she said. “I became increasingly opposed to the capitalists’ pursuit of wealth after I read Marx, so in the end I chose to become a civil servant.”

©2022 Bloomberg L.P.

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Here is Trump economy: Slower growth, higher prices and a bigger national debt

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If Donald Trump is re-elected president of the United States in November, Americans can expect higher inflation, slower economic growth and a larger national debt, according to economists.

Trump’s economic agenda for a second term in office includes raising tariffs on imports, cutting taxes and deporting millions of undocumented migrants.

“Inflation will be the main impact” of a second Trump presidency, Bernard Yaros, lead US economist at Oxford Economics, told Al Jazeera.

“That’s ultimately the biggest risk. If Trump is president, tariffs are going up for sure. The question is how high do they go and how widespread are they,” Yaros said.

Trump has proposed imposing a 10 percent across-the-board tariff on all imported goods and levies of 60 percent or higher on Chinese imports.

During Trump’s first term in office from 2017 to 2021, his administration introduced tariff increases that at their peak affected about 10 percent of imports, mostly goods from China, Moody’s Analytics said in a report released in June.

Those levies nonetheless inflicted “measurable economic damage”, particularly to the agriculture, manufacturing and transportation sectors, according to the report.

“A tariff increase covering nearly all goods imports, as Trump recently proposed, goes far beyond any previous action,” Moody’s Analytics said in its report.

Businesses typically pass higher tariffs on to their customers, raising prices for consumers. They could also affect businesses’ decisions about how and where to invest.

“There are three main tenets of Trump’s campaign, and they all point in the same inflationary direction,” Matt Colyar, assistant director at Moody’s Analytics, told Al Jazeera.

“We didn’t even think of including retaliatory tariffs in our modelling because who knows how widespread and what form the tit-for-tat model could involve,” Colyar added.

‘Recession becomes a serious threat’

When the US opened its borders after the COVID-19 pandemic, the inflow of immigrants helped to ease labour shortages in a range of industries such as construction, manufacturing, leisure and hospitality.

The recovery of the labour market in turn helped to bring down inflation from its mid-2022 peak of 9.1 percent.

Trump has not only proposed the mass deportation of 15 million to 20 million undocumented migrants but also restricting the inflow of visa-holding migrant workers too.

That, along with a wave of retiring Baby Boomers – an estimated 10,000 of whom are exiting the workforce every day – would put pressure on wages as it did during the pandemic, a trend that only recently started to ease.

“We can assume he will throw enough sand into the gears of the immigration process so you have meaningfully less immigration, which is inflationary,” Yaros said.

Since labour costs and inflation are two important measures that the US Federal Reserve weighs when setting its benchmark interest rate, the central bank could announce further rate hikes, or at least wait longer to cut rates.

That would make recession a “serious threat once again”, according to Moody’s.

Adding to those inflationary concerns are Trump’s proposals to extend his 2017 tax cuts and further lower the corporate tax rate from 21 percent to 20 percent.

While Trump’s proposed tariff hikes would offset some lost revenue, they would not make up the shortfall entirely.

According to Moody’s, the US government would generate $1.7 trillion in revenue from Trump’s tariffs while his tax cuts would cost $3.4 trillion.

Yaros said government spending is also likely to rise as Republicans seek bigger defence budgets and Democrats push for greater social expenditures, further stoking inflation.

If President Joe Biden is re-elected, economists expect no philosophical change in his approach to import taxes. They think he will continue to use targeted tariff increases, much like the recently announced 100 percent tariffs on Chinese electric vehicles and solar panels, to help US companies compete with government-supported Chinese firms.

With Trump’s tax cuts set to expire in 2025, a second Biden term would see some of those cuts extended, but not all, Colyar said. Primarily, the tax cuts to higher earners like those making more than $400,000 a year would expire.

Although Biden has said he would hike corporate taxes from 21 percent to 28 percent, given the divided Congress, it is unlikely he would be able to push that through.

The contrasting economic visions of the two presidential candidates have created unwelcome uncertainty for businesses, Colyar said.

“Firms and investors are having a hard time staying on top of [their plans] given the two different ways the US elections could go,” Colyar said.

“In my entire tenure, geopolitical risk has never been such an important consideration as it is today,” he added.

 

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China Stainless Steel Mogul Fights to Avoid a Second Collapse

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Chinese metal tycoon Dai Guofang’s first steel empire was brought down by a government campaign to rein in market exuberance, tax evasion accusations and a spell behind bars. Two decades on, he’s once again fighting for survival.

A one-time scrap-metal collector, he built and rebuilt a fortune as China boomed. Now with the economy cooling, Dai faces a debt crisis that threatens the future of one of the world’s top stainless steel producers, Jiangsu Delong Nickel Industry Co., along with plants held by his wife and son. Its demise would send ripples through the country’s vast manufacturing sector and the embattled global nickel market.

 

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Why Trump’s re-election could hit Europe’s economy by at least €150 billion

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A Trump victory could trigger a 1% GDP hit to the eurozone economy, with Germany, Italy, and Finland most affected. Renewed NATO demands and potential cessation of US aid to Ukraine could further strain Europe.

The potential re-election of Donald Trump as US President poses a significant threat to the eurozone economy, with economists warning of a possible €150 billion hit, equivalent to about 1% of the region’s gross domestic product. This impact stems from anticipated negative trade repercussions and increased defence expenditures.

The recent attack in Butler, Pennsylvania, where former President Trump sustained an ear injury, has boosted his re-election odds. Prediction markets now place Trump’s chances of winning at 71%, a significant rise from earlier figures, while his opponent, Joe Biden, has experienced a sharp decline, with his chances dropping to 18% from a peak of 45% just two months ago.

Rising trade uncertainty and economic impact from tariffs

Economists James Moberly and Sven Jari Stehn from Goldman Sachs have raised alarms over the looming uncertainty in global trade policies, drawing parallels to the volatility experienced in 2018 and 2019. They argue that Trump’s aggressive trade stance could reignite these uncertainties.

“Trump has pledged to impose an across-the-board 10% tariff on all US imports including from Europe,” Goldman Sachs outlined in a recent note.

The economists predict that the surge in trade policy uncertainty, which previously reduced Euro area industrial production by 2% in 2018-19, could now result in a 1% decline in Euro area gross domestic product.

Germany to bear the brunt, followed by Italy

Germany, Europe’s industrial powerhouse, is expected to bear the brunt of this impact.

“We estimate that the negative effects of trade policy uncertainty are larger in Germany than elsewhere in the Euro area, reflecting its greater openness and reliance on industrial activity,” Goldman Sachs explained.

The report highlighted that Germany’s industrial sector is more vulnerable to trade disruptions compared to other major Eurozone economies such as France.

After Germany, Italy and Finland are projected to be the second and third most affected countries respectively, due to the relatively higher weight of manufacturing activity in their economies.

According to a Eurostat study published in February 2024, Germany (€157.7 billion), Italy (€67.3 billion), and Ireland (€51.6 billion) were the three largest European Union exporters to the United States in 2023.

Germany also maintained the largest trade surplus (€85.8 billion), followed by Italy (€42.1 billion).

Defence, security pressures and financial condition shifts

A Trump victory would also be likely to bring renewed defence and security pressures to Europe. Trump has consistently pushed for NATO members to meet their 2% GDP defence spending commitments. Currently, EU members spend about 1.75% of GDP on defence, necessitating an increase of 0.25% to meet the target.

Moreover, Trump has indicated that he might cease US military aid to Ukraine, compelling European nations to step in. The US currently allocates approximately €40bn annually (or 0.25% of EU GDP) for Ukrainian support. Consequently, meeting NATO’s 2% GDP defence spending requirement and offsetting the potential reduction in US military aid could cost the EU an additional 0.5% of GDP per year.

Additional economic shocks from Trump’s potential re-election include heightened US foreign demand due to tax cuts and the risk of tighter financial conditions driven by a stronger dollar.

However, Goldman Sachs believes that the benefits from a looser US fiscal policy would be marginal for the European economy, with by a mere 0.1% boost in economic activity.

“A Trump victory in the November election would likely come with significant financial market shifts,” Goldman Sachs wrote.

Reflecting on the aftermath of the 2016 election, long-term yields surged, equity prices soared, and the dollar appreciated significantly. Despite these movements, the Euro area Financial Conditions Index (FCI) only experienced a slight tightening, as a weaker euro counterbalanced higher interest rates and wider sovereign spreads.

In conclusion, Trump’s potential re-election could have far-reaching economic implications for Europe, exacerbating trade uncertainties and imposing new financial and defence burdens on the continent.

 

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