But is China’s economy really in dire straits? The short answer is no. Since emerging from the COVID-19 lockdowns last year, the country’s recovery has been relatively strong. The Chinese economy developed 6.3 percent year-over-year in the second quarter of 2023, surpassing it average annual growth rate of OECD countries.
In addition, the International Monetary Fund is waiting China’s GDP will grow by 5.2 percent this year and 4.5 percent next year – much higher than its forecasts for the United States (1.6 percent and 1.1 percent, respectively), the United Kingdom (-0.3 percent and 1 percent) and Germany (- 0.1 percent and 1.1 percent). Even China’s rise in youth unemployment is less alarming compared to OECD countries such as Spain, Italy and Sweden, where youth unemployment rates fluctuate 20 percent for many years.
This gap between perception and reality can partly be attributed to how China’s exceptional economic performance in recent decades has affected public expectations. For more than 20 years, the economy grew by approx 10 percent per annuma series so unusual that the “Chinese growth miracle” was coined.
But such miracles cannot last forever, and Chinese policymakers have predicted the inevitable slowdown for more than a decade. In 2013, economists (both in China and around the world) was foreseen that growth will gradually fall to 3-5 percent by 2030, but that high-skill sectors such as technology will continue to expand. The decline in GDP growth, however, came much earlier and was much sharper than expected due to policy decisions, the trade war with the US and the COVID-19 pandemic, which caused more severe and long-lasting economic disruptions in China than than in other major economies.
In addition to failing to predict the timing and magnitude of China’s growth slowdown, economists and policymakers misjudged who would suffer the most. It was widely assumed that high-skilled jobs, especially in technology, would be protected from the decline. Despite all these, tens of millions
of the blue-collar workers was dismissed from unprofitable factories during China’s transformation from a low-productivity to a market-driven high-productivity economy in the late 1990s and early 2000s.
Job instability is one reason why Chinese parents push their children toward academic success and admission to a selective university. Acceptance rates at top Chinese universities are estimated to be lower 0.01 percent for students in some provinces and about 0.5 percent for those in large municipalities such as Beijing and Shanghai. By comparison, Harvard College had an acceptance rate of equal 3.41 percent This year.
Traditionally, the rewards were worth the sacrifice. Unlike lower schools in China, a degree from a top university opened doors to the best companies and almost guaranteed low levels of employment instability. Even as unemployment rose steadily, graduates of elite institutions could count on opportunities in technology and finance — the sectors that were supposed to fuel China’s growth. But now even this cohort is facing a tough job market.
Recent economic policy decisions have not helped. Years since regulatory action to rein in big technology, including a repression on the well-financed ed-tech industry, had a chilling effect on potential growing industries. The government’s evolving approach to globalization and changing mindsets about the market economy have spooked investors. and ongoing real estate crisis has limited investment. Banks and tech companies are booming cost cuttingleading to a shortage of high-wage, high-skilled jobs for recent graduates in these industries.
During China’s large-scale privatization process, older workers struggled to find new employment in the rapidly changing economy. But now, employers are reluctant to fire older workers—both because they have valuable experience and because they are protected by labor laws. Consequently, job shrinkage is more pronounced among young people. Recent Chinese graduates face tough competition for positions that often pay less than before.
This is a tough pill to swallow. Many graduates who apply for these jobs have been studying hard and working hours every day since early childhood. Their parents, and sometimes even their grandparents, invested in teachers, starting in preschool, and spent countless hours challenging them to study harder. But what was the point if the jobs they were working for no longer existed?
That said, rising youth unemployment does not spell economic apocalypse for China. After decades of high economic growth, today’s youth—even with fewer people working—will be richer than any other generation in China’s history. The problem youth unemployment poses for China lies in one question: How will the mismatch between expectations and reality play out?
Young people and their families may accept that the goals they have striven for are unattainable, at least for now, and find satisfaction elsewhere. If they do not find such satisfaction, youth unemployment could spark unrest and cause political instability, as happened in Arab world and Africa. Chinese economic policymakers should tread carefully.
This article originally appeared on Project Syndicate.