China's authorities may face a bigger worry than slowing economic growth.
The jobless rate may be three times the official estimate, according to a new report by Fathom Consulting, whose China's Underemployment Indicator has tripled to 12.9 percent since 2012 even while the official jobless rate has hovered near 4 percent for five years.
The weakening labor market may explain China's decision to uncork the credit spigots and revive old growth drivers in an effort to stabilize the world's no. 2 economy.
Leaders have stressed that keeping employment stable is a top priority. Fathom's data shows that while mass layoffs haven't materialized, the number of people not working at full capacity or hours has increased.
"The degree of slack has surged in recent years," analysts at the London-based firm wrote. "China has a substantial hidden unemployment problem, in our view, and that explains why the authorities have come under so much pressure to re-start the old growth engines."
Leaders of the world's most populous nation have promised to slash excess capacity in coal mines and steel mills while at the same time ensuring that the economy grows by at least 6.5 percent this year.
Across the nation, state-backed 'zombie' factories are being kept alive by local governments to keep a lid on any social unrest. To keep the plants ticking over, employees in some cases have been asked to work half the time for half the pay.
The official registered unemployment gauge is notorious for not changing during economic cycles. It's compiled from the number of people who register at local governments for unemployment benefits, which excludes most of the nation's more than 270 million migrant workers.
Another official jobless rate, based on surveys into major cities and supposed to be more accurate, stayed at about 5.1 percent as of April. That's also little changed in the past two years.
Though official data show employment weathering a slowdown, any deviation from that would touch a nerve for top Communist Party officials.
"Job insecurity is a key driver of social instability – something that China’s authorities need to avoid at all costs," Fathom wrote.
Beijing's top officials may also worry about waning productivity growth. That's been "particularly weak" in the services sector, which absorbs most labor, the consultancy says.
While growth slowed last year to 6.9 percent, the weakest in 25 years, Fathom estimates it was just a fraction of the official pace: 2 percent.