China’s economic rebound puts more emphasis on employment
The Central Economic Work Conference held at the end of last year emphasized that it is necessary to focus on stabilizing growth, employment, and prices. That’s to effectively prevent and defuse major risks, promote the overall improvement of economic operations and achieve effective improvements in quality and reasonable growth in quantity. The meeting demanded that China should prioritize economic stability, pursue steady progress while ensuring stability, and continue to implement a proactive fiscal policy and a prudent monetary policy. This has set the tone for the policy orientation of this year’s economic work.
The government work report delivered during the Two Sessions laid out detailed economic targets, with GDP growth at around 5 percent, newly added jobs of around 12 million, a surveyed urban unemployment rate of around 5.5 percent, and an increase in consumer price index of about 3 percent. Among the main economic targets for this year, the economic growth target is a bit more conservative while the new job target was set higher, indicating more emphasis would be placed on employment as the Chinese economy rebounds.
Modest growth target to fully weigh on favorable factors and challenges
This year’s expected economic growth rate of around 5 percent is slightly lower than market expectations. In January 2023, the International Monetary Fund estimated China’s economic growth for 2023 rate to be 5.2 percent while the Wind consensus GDP forecast was around 5.3 percent. The modest growth target, on one hand, reflects that the government fully estimates the challenges and difficulties that be encountered given the complex internal and external environment. On the other hand, it also reflects the need to promote high-quality development. This requires maintaining reasonable growth over the medium-to-long term on the basis of improving the development quality and benefits. Besides, it has further demonstrated that China’s economic recovery this year would rely more on endogenous growth rather than strong policy stimulus.
There are four factors that could be beneficial to the Chinese economy this year, including optimization of pandemic control measures, continuous macro policy support, property sector risks being addressed, and the low base effect. With these favorable factors, the Chinese economy is expected to be on a recovery path and form an independent upward trajectory amid slowing global economic growth. In January and February, PMI continuously bounced back to expansionary territory, showing improvements in both the demand and supply sides. Economic data for the first two months confirmed domestic economic recovery is underway. Retail sales and industrial output increased by 3.5 and 2.4 percent year-on-year in January and February, up 5.3 and 1.1 percentage points respectively compared with December 2022. Fixed-asset investment grew strongly with year-on-year growth of 5.5 percent. Besides, the decline in real estate investment has narrowed to 5.7 percent year-on-year, up 4.3 percentage points compared with the previous month. And the growth in completed house area and value of new apartment sales both turned positive, with yearly increases of 8 percent and 3.5 percent respectively, indicating policy support launched last November is having an effect.
Despite these favorable conditions, it’s still needed to be fully aware of the uncertainties and challenges. Domestically, households and businesses may take a longer time to repair their balance sheets as many have experienced income losses and employment difficulties. The property sector and local government debt issues still pose challenges. Internationally, downward pressures on the global economy could weigh on China’s external demand. Continued monetary tightening by major central banks may cause further financial instability issues and have a spillover effect on the Chinese economy.
More emphasis on employment is key to solid recovery
The target for new job creation of 12 million is not only higher than market expectations, it is also the highest on record. This has demonstrated that the government is putting more focus on employment. It is also consistent with the policy of boosting domestic demand and prioritizing expansion of consumption, as employment leads to income, and therefore consumption.
Over the past three years, China’s economy has been operating under a negative output gap due to the persistent impact of the pandemic, showing that the economic recovery is uneven, and the foundation is not yet solid. One important observation is that the unemployment gap is positive. The average annual increase in urban employment over the last three years was 12.2 million, which was 1.18 million less than the trend value from 2015 to 2019. Last year, the urban employed population decreased by 8.42 million for the first time compared with 2021, when the total employed population decreased by 13.01 million. In January and February of this year, the average unemployment rate was 5.55 percent, slightly lower than last year. But the average youth unemployment ticked up to 17.7 percent and the new job creation during January stood at 0.67 million, lower than the average of 0.83 million over the same period from 2013 to 2022. This may partly reflect that the pandemic infection during January may negatively affect economic activity and correspondingly job creation.
Promoting employment is key to strengthening economic recovery and expanding domestic demand, especially consumption. What needs to be achieved this year is a recovery with more employment, not a rebound with less job creation. This is also the specific requirement for achieving high-quality development.