By John Richardson
CHINA has set itself the target of creating 10 million jobs this year during a time when real GDP growth, as opposed to the fictional government numbers, is probably down in the single digits.
GDP growth is also quite likely even negative in some of China’s hardest-hit provinces.
Local newspapers are also filled with report of how the 7.5 million young people who are expected to graduate from China’s colleges and universities this year will struggle to find work – and if they do find work it often won’t be well paid.
And yet, as The Economist Intelligence Unit (EIU) wrote in January of this year about China’s official unemployment rate: “It has stayed in an extremely narrow range of 4.0-4.3% for the last 13 years, a period during which China’s [official] GDP growth rate has been as fast a 14% and as slow as 7%.
Sure enough, therefore, despite the extent of the economic slowdown, the government-run Xinhua wire service announced in July that registered urban unemployment fell to 40.5% at the end of June, down from 4.05% in March.
But as the EIU quote suggests there are problems with China’s jobless data, which Peter Cai, the Australian-based Business Spectator, pointed out are as follows:
- To be included in the urban registered unemployment rate, you need to register at a designated government office. Because this process is both complicated and demeaning, most people don’t bother.
- More importantly, the data do not capture China’s migrant workers, recent estimates of which range from 150 million to 170 million.
When economic growth was booming getting the unemployment rate exactly right didn’t really matter to China’s politicians. The reason is that even if the numbers were underestimates, there was still sufficient positive growth around to keep enough of the people happy for enough of the time.
But now, as growth undergoes a multi-year slowdown during the most risky set of economic reforms for at least 20 years, dealing with and accurately measuring unemployment have become top government priorities.
“The macroeconomic policy of many countries is set according to the surveyed unemployment rate. We have come the point where this data is equally important to us. The basic aim of developing the economy is to create jobs,” Li Keqiang, China’s prime minister, said recently.
He added that there was a need for better data on joblessness, which has prompted the National Bureau of Statistics (NBS) to talk about extending its current survey of 65 large cities to also include district level cities.
The survey was first introduced in November 2014 as an alternative to the urban registered unemployment rate. In May, which is the latest figure available, the survey showed that the jobless rate was 5.1%
What will the unemployment rate be if and when the NBS produces the first results of its new, revised survey? I suspect it will be significantly higher than 5.1%, which the government very probably already knows.
So you now you have one of your main reasons as to why the yuan has been allowed to fall in value against the US dollar by 3.5% over the last two days – and by 4.8% against a basket of global currencies.
A weaker yuan, would boost exports, China’s Ministry of Commerce told Reuters earlier today. And more exports equals more jobs.
But the People’s Bank of China, China’s central bank, also issued this statement yesterday: “Looking at the international and domestic situation, currently there is no sustained depreciation trend for the yuan.
Reuters, though, also wrote that “sources involved in the Chinese policy-making process said powerful voices within the government were pushing for the yuan still go lower, suggesting pressure for an overall devaluation of 10%.
You can see why this might be the case when you look at how much competing currencies had fallen against the US dollar up until Tuesday of this week. The Euro was, for example, down by 9.4% and the Brazilian real by 31%.
Chemicals companies must therefore prepare for a further weakening of the yuan as China both attempts to minimise unemployment, whilst also attracting the capital inflows it needs to repair its capital account.
What does this mean for the chemicals industry? Here are the implications which are worth repeating from yesterday, printing off and pinning on your boardroom wall:
- China has huge oversupply in just about every manufacturing industry and so it has the ability to fill “bargain basement” stores in the West with even cheaper goods. This will be during a period of history when hundreds of millions of middle class families in the West will be clamouring for ever-cheaper goods, from anywhere and everywhere, because of ageing populations.
- So the devaluation will add to global deflationary pressures – and will contribute to further declines in crude oil, back to its historic level of around $30 a barrel.
- Chemicals companies might think, “Great, we can export more to China as they ramp up manufacturing”. But they will lose customers in their own backyards as China takes more market share in manufacturing.
- We might also see greater tensions in international trade.