17 April 2018, 09:37 GMT
Unlike other large economies, China has not historically published an official monthly unemployment rate. To gauge the state of the Chinese economy, the investment community has relied in part on the targeted and actual GDP growth rate, which has been generally stable and came in at 6.8 per cent in the first quarter, broadly in line with expectations.
Instead, up until now, the official unemployment rate has been a quarterly gauge based on social benefit applications and random sampling. Over the past 15 years, this has hovered around 4 per cent but many believe this measure has not a true reflection of employment in China. For instance, there are over 250 million migrant workers who remain unaccounted for under this quarterly gauge.
However, from this month, the National Bureau of Statistics of China (NBS) has started to release a monthly urban unemployment rate. This ‘new’ unemployment rate is survey-based, with regular and higher quality sampling, similar to what we see in most developed economies. As a result, this gauge should be a better indicator of China’s urbanisation and consumption trends, which are two of the country’s long-term growth-drivers.
The economic goals released at the 2018 session of China's National People’s Congress (NPC) were all heavily skewed towards employment: household income and GDP growth synchronisation, and a lowering of the ‘new’ urban unemployment rate to below 5.5 per cent. For April, the new reading came in at 5.1 per cent, which was well within expectations. On the back of the measures announced at the NPC, we expect more than 15 million people will enter the urban job market this year. As the Chinese economy continues to transition from manufacturing and export led growth to consumption and services led model, the importance of the unemployment rate and related job market data will increase, and will take on greater importance for future policy making decisions.
From an investment point of view this has three main implications. Firstly, going forward, GDP growth and the urban unemployment rate will be two of the most significant indicators for tracking the Chinese economy. Secondly, the focus on unemployment rate re-enforces the Chinese government’s commitment to social stability and improving living conditions whilst urbanisation continues. Thirdly, the 2018 targets for GDP growth of around 6.5 per cent and improved urban unemployment rate to below 5.5 per cent indicate the tolerance level and boundaries for government policy setting. This might imply that a regulatory easing may not happen unless the unemployment rate worsens beyond 5.5 per cent.
Overall, improved transparency and consistency in data should give investors a better idea of how high unemployment is in China, and also allow the investment community to make more accurate comparisons between China and other large economies.
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