China Has a Big Employment Problem

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Global Economic Crisis
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Slow employment growth just ratchets up a whole range of social tensions in China.

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<p>I think it's too early to tell, but the main effect is very clearly going to be a slowdown in export demand, and this is something over which they have no control. And it's going to be difficult, because they relied on export demand quite substantially, not just to obtain foreign exchange and exchange for the imports, but to create employment. The big weakness of the Chinese economy, as I see it, is the investment system, which channels resources through the state banks to the state sector, which invests in projects which are often not very well-planned, but rarely create employment. And China has a big employment problem. Employment growth has been slow in the last 15 years, and slow employment growth just ratchets up a whole range of social tensions in China. And so, now what's happening is that the exports have dropped, demand has shifted from the market sector to the state sector, the government stimulus goes to the state banks and to state projects, which don't create very much employment, so employment creation per dollar of GDP growth is going to be low, and now you have these problems at every level. People graduating from schools are looking for employment and not finding employment, and this creates a lot of difficulties for the government at every level. And I think, for example, the race riots in Xinjiang this year, in 2009, who goes out looking for people to kill? I suspect that there's a very strong correlation between no fixed employment; people with steady employment, I think, are less likely in any society to participate in these sorts of activities, so it's not just employment, it's not just income distribution, but going beyond that to all kinds of social tensions that these labor market difficulties are linked to.</p>
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Thomas Rawski talks about how China's reliance on exports to create employment could cause a lot of pain following the global financial crisis. He also points to China's investment system as a weak link in the economy's growth and stresses the link between unemployment and social tension.