Don’t panic: China’s economy still stable

Don’t panic about slower growth, globally or in China, now. Things look OK. China’s PMIs remain above 50. The economic growth rate has slowed, but the job market is still strong. Employment should be the focus rather than the GDP growth number. If GDP growth is only 8% but there is no systemic unemployment, China will be fine.

Some worry that millions are currently unable to find jobs. We wonder about the data here. Changing demographics (fewer new young people are now entering the  workforce) mean that we do not need to worry about employment as much as we did  in the 1990s. If millions are indeed still looking for jobs, the strong wage growth among migrant workers is hard to explain.

Independent surveys suggest average manufacturing wage growth of 10-15% this year, higher in some areas. The labour market is certainly fragmented; graduates and less skilled urban workers have more difficulty finding work than migrants. This is likely because the real cost of hiring urban hukou (household registration) holders is higher given the need for social security contributions, and their productivity is lower.

China needs to monitor the job market and be prepared to deal with any signs of a more severe slowdown. If a shock does hit and/or global economic growth deteriorates badly, policy makers will need to respond. Exports have probably accounted for around 15-20% of GDP growth and 30-40% of manufacturing growth. There is now less policy room to respond to a significant deterioration in domestic or external demand than in 2008, but adequate measures are still available.