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China Job Needs Show Why GDP Slowdown May Be Tolerated: Economy

Shrinking China Job Needs Show Why GDP Slowdown May Be Tolerated
A welder works at Sulzer AG's factory in Shanghai, China. Photographer: Nelson Ching/Bloomberg

The slowdown in China’s economy isn’t making it any easier for Liu Fenglin to hire 10 experienced welders this year for his heating-equipment maker.

Liu has managed to find just three employees even with the economy in its deepest slowdown since the global financial crisis. “The scenario when migrant workers will throng around your desk after you hang the job poster is long gone,” said Liu, 46, whose company is in the southern city of Zhuhai. “It’s getting worse year by year.”

The world’s second-biggest economy probably expanded 7.4 percent in the third quarter from a year earlier, according to the median estimate in a Bloomberg News survey of 43 economists before data due in Beijing tomorrow. That’s the slowest pace since the first quarter of 2009 and the seventh straight quarterly deceleration.

Liu’s story helps explain why the ruling Communist Party hasn’t rolled out a stronger monetary and fiscal policy response as officials watch for signs that the economy is stabilizing. While the government has this year described the labor market as “grim,” pressure for job creation is lessening as the one-child policy introduced in 1979 caps new entrants to the workforce.

As recently as 2010, Premier Wen Jiabao said that an 8 percent expansion was necessary for “basic stability of employment,” and anything lower will create “problems,” according to the party’s Qiushi magazine.

Labor Resilience

“With China’s shifting demographics, that benchmark should shift as well,” said Louis Kuijs, chief China economist for Royal Bank of Scotland Plc in Hong Kong, who previously worked for the World Bank in Beijing. Labor market resilience “reduces the perceived urgency of a major policy response,” he said.

The working-age population is growing at 0.5 percent a year now, one-third the pace of 10 years ago, Kuijs estimates. That means the benchmark growth rate may be 7 percent, he said.

China unleashed a 4 trillion yuan ($586 billion at the time) stimulus package and an unprecedented bank lending spree at the end of 2008 to shield the economy from the global financial crisis, as a collapse in exports led to about 20 million migrant workers losing their jobs. The central bank cut interest rates five times in four months and lowered lenders’ reserve requirements three times in the final quarter of 2008.

This time the response is more muted, with bank reserve requirements cut three times since November, interest rates reduced in June and July, and a speeding of investment approvals.

Services Growth

“The government is hoping that its mini-stimulus and easier credit policy will translate into enough of a recovery to maintain tightness in the labor market,” said Alistair Thornton, a Beijing-based economist with IHS Global Insight. “In the longer term, if China can with the necessary reforms transition to an annual growth pattern of around 6 percent with stronger consumer activity and services sector output, there’s no reason why the labor market should be affected.”

Markus Rodlauer, deputy director of the International Monetary Fund’s Asia and Pacific Department, said today in Hong Kong that economic growth of 7 percent to 8 percent is the “new normal” for China and there’s a very low probability of a so-called hard landing.

The government’s easing measures have failed to satisfy the nation’s stock markets. The benchmark Shanghai Composite Index has dropped 10 percent since the first reserve requirement cut was announced on Nov. 30, and about 15 percent since this year’s March 2 high, as the slowdown has hurt corporate earnings. The gauge was up 0.2 percent at 9:52 a.m. today.

Baoshan Iron & Steel Co., China’s largest listed steelmaker reported a 60 percent decline in first-half operating profit and said last month it suspended production at a plant after demand fell for slabs used in ships and bridges.

Yuan Gains

The yuan today touched 6.2530 per dollar, the strongest level since the government unified the official and market exchange rates at the end of 1993, China Foreign Exchange Trade System prices show. The upcoming U.S. election and visit to China by U.S. Deputy Secretary of State William Burns have contributed to recent appreciation, Financial News, published by the People’s Bank of China, said today in a commentary, citing unidentified people.

Elsewhere in the Asia-Pacific region, Singapore’s non-oil exports unexpectedly fell 3.4 percent in September, data showed today. The Bank of Thailand will keep its benchmark interest rate at 3 percent, according to the median forecast of 23 economists in a Bloomberg News survey.

In Europe, minutes of the Bank of England’s October meeting will be published today. U.K. central bank officials voted at the session to complete their latest round of stimulus.

U.S. Housing

Housing starts in the U.S. in September rose 2.7 percent to a 770,000 annual rate from the previous month, according to the median estimates in a Bloomberg survey. Building permits, a measure of future projects, also climbed, according to the median forecast in a separate survey.

Chinese Communist Party leaders are assessing the economy and the job market as they prepare for a once-a-decade handover of power at a congress in Beijing next month that is set to see Xi Jinping become head of the party. At the annual session of the legislature in March, Xi will probably succeed Hu Jintao as president and Vice Premier Li Keqiang may succeed Wen.

A slowdown in third-quarter growth to 7.4 percent, if confirmed this week, raises the risks that China will fail to exceed its growth goal for the first time since 1998. Wen in March set a goal of 7.5 percent for 2012.

Six out of 40 economists surveyed Sept. 11-18 by Bloomberg News forecast the expansion will slow to 7.5 percent in 2012 from 9.3 percent last year.

Inflation Eases

The mixed picture from September economic data includes a pick-up in exports and money supply, while lending was below forecasts and import growth of 2.4 percent compared with more than 20 percent in the same month in 2011.

Consumer-price gains of 1.9 percent last month were close to the slowest pace in two years. Rising housing and food prices may trigger a rebound to 4 percent by year-end, according to Credit Agricole CIB.

In its report tomorrow, the statistics bureau will also release September industrial production and retail sales data, and fixed-asset investment for the first nine months of the year. Output probably rose 9 percent from a year earlier, according to a Bloomberg survey, close to the slowest pace in more than three years.

The latest slowdown hasn’t triggered job losses on the scale of the 2008 crisis. In July, Yin Chengji, spokesman for the Ministry of Human Resources and Social Security, said that while some businesses had made temporary job cuts, there had been no large-scale layoffs of migrant workers.

‘Stable’ Situation

Last month, Vice Minister Xin Changxing said the employment situation was generally “stable.” The nation created 9.18 million urban jobs in the first eight months of the year, Xin said, exceeding the full-year target of 9 million.

Chang Jian, a Hong Kong-based economist at Barclays Plc who previously worked at the World Bank, said new entrants to the labor market have fallen to 4 million to 5 million a year from 10 million in the early 2000s. That means “6 to 7 percent growth is about right for China,” she said.

The number of people aged 15 to 24 is projected to shrink 11.3 percent to just under 200 million in the five years through 2015 after expanding 1.3 percent in 2005-2010 and 13.2 percent in 2000-2005, according to United Nations data. The group’s share of the population will decline to 14.6 percent in 2015 from 16.8 percent in 2010, sliding to 11.4 percent in 2030, the UN forecasts.

Missing Data

There’s no reliable way to track changes in China’s employment. The broadest figure the government gives is the quarterly urban jobless rate, which excludes migrant workers and has held at 4.1 percent for eight quarters through June, according to the labor ministry.

The highest rate since Bloomberg started compiling the data in 2002 was 4.3 percent in 2009.

The Ministry of Human Resources and Social Security conducts a quarterly survey of employment in 100 cities. Its latest report indicated 6.433 million positions were posted in the third quarter, while there were 6.1 million job-seekers. The ratio between positions available and sought was unchanged from the second quarter.

In Shanghai, the easiest work to find was “restaurant waiter and waitress,” with four positions available for every job seeker, the study indicated. Least promising was “vehicle driver,” with four applicants chasing each position.

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