China: Graduating this Year?

Last week China Daily had an interesting article on job prospects for university graduates on the mainland. In 2006, as a reaction to rising unemployment among college graduates – even with GDP growth buzzing at rates above 12% – the government launched a program to help students find jobs as university teachers. The program has been expanded this year. According to the article:

Schools across China will hire 50,000 college graduates as short-term teachers this year to help ease employment pressure. That is almost triple the number of teachers hired last year.

They will work under three-year contracts with local education departments and be paid by a special central government fund, the Ministry of Education said. “Most of the jobs are only open to students who will graduate from colleges this year,” ministry spokeswoman Xu Mei said on Wednesday.

The newspaper article comes with a graph listing the number of graduates in the past nine years. According to the graph, Chinese universities graduated 1.45 million students in 2002. Five years later that number had risen to 4.95 million. In 2008, 5.59 million students graduated and later this year 6.10 million are expected to graduate.

Meanwhile job offers are declining. The same issue of China Daily has a second article on the prospects for college employment in Guangdong province.

Only about 7 percent of the students who are about to graduate in July have managed to secure jobs till now, down 50 percent from the same period last year, the Guangdong education bureau said yesterday.

About 331,000 local college students will graduate in July this year, 14.2 percent more than last year. A large number of graduating students from other provinces have been coming to Guangdong in search of jobs, the bureau said, adding that almost 500,000 graduates would be applying for jobs in Guangdong this year.

The demand for graduates has dipped by 20 percent in the wake of the global economic slowdown, Luo Weiqi, director of the Guangdong provincial education bureau, said.

Till March 10, only 7.61 percent of four-year college graduates have found jobs and signed work contracts, Luo said.

In contrast, 8.43 percent of two-year or three-year college graduates, and 14.87 percent of all postgraduates have signed labor contracts, he added. So far, the bureau has organized 36 job fairs for fresh graduates. However, according to Luo, the number of available jobs in finance and real estate is far less than previous year’s.

I have heard that the Guangdong numbers are pretty consistent with numbers from other provinces, with roughly 30% of last year’s graduates still unemployed, and current graduates getting job offers at half the rate of last year – already a bad year. The (small bit of) good news is that unemployment prospects may increase the likelihood of Chinese graduates starting their own businesses. Often in the foreign press I have read ecstatic paeans to Chinese entrepreneurialism, some thing that doesn’t jibe at all with my experiences as a university professor or in running a music club and independent music label, and the first of the two China Daily articles seems to confirm my skepticism:

Special funds and subsidies have been earmarked to encourage college graduates to work in rural and grassroots positions or to start their own businesses. However, “most graduates are focusing on jobs in large cities and few would like to start their own businesses”, Wang [Yadong, deputy director of Ministry of Human Resources and Social Security employment promotion department] said.

A recent study by the MHRSS found only 0.3 percent of college graduates in 2007 started their own businesses. That is much lower than some developed countries where the rate is about 40 percent.

If more Chinese graduates are forced – by terrible job prospects – to consider starting their own businesses, the long term consequences for China should be positive although, as everyone running a small business in China will tell you unendingly, starting and running businesses here is extremely difficult and, what is worse, it is never easy to know when you are and when you aren’t legally compliant. Still, China really does need more entrepreneurialism and one of the unexpected benefits of the crisis may be to boost small businesses.

As for the job creation program, today’s South China Morning Post has a more sobering assessment:

New selection criteria are expected to eliminate existing substitute teachers from contention for 200,000 new teaching positions in village schools and give the edge to this year’s crop of 6 million or so university graduates, state media reported yesterday.

Under regulations issued by the Ministry of Education, all candidates for teaching positions at mainland primary or secondary schools will have to pass a tough exam that many poorly educated substitute teachers would generally not be able to pass. It is the first time that the mainland has stipulated prerequisites for teachers.

The article goes on to say:

But education experts have raised doubts about the scheme’s feasibility, given that fewer than 59,000 graduates have joined since it was introduced in western provinces more than three years ago. Others say the plan simply brushes reality aside. “Even with government subsidies, rural teaching jobs are still the least attractive positions for the vast majority,” mainland columnist Song Guifang said.

“Village schools could end up with no teachers if regulators raise the recruitment standards too high. You will immediately understand that this action is leading you down a blind alley when you visit any of the 100,000 shabby village schools deep in the mountains. Qualified candidates that do pass the tough examination are very likely to pass up the offer.”

Many substitute teachers in poor areas claim the Ministry of Education has sacked tens of thousands of their counterparts since 2006 without proper severance payments, all the while subsidising the expensive scheme to help jobless graduates. Substitute teacher Zhang Xicang – from Nayong county in Guizhou, one of the nation’s poorest areas – said he had taught there for a decade and was paid just 50 yuan a month, about 8 per cent of the pay that a fresh graduate would receive for the same job.

More than 765,000 students graduate as teachers every year and compete for the 200,000 or so vacancies at primary and secondary schools.

Regular blog readers know that I have worry a lot about graduate employment, not just out of concern for my students (most of whom mercifully don’t have to worry about unemployment), but also because I think of college employment as being a very useful way of understanding China’s development model. If all the growth of the past four or five years has nonetheless been unable to absorb the employment needs of China’s university graduates, that tells us something both about the composition of job creation in China as well as the possible impact of a sharp slowdown.

By coincidence an ADB report released today highlights this issue while cutting its growth forecast for China. According to an article in today’s Bloomberg:

China’s 4 trillion yuan ($585 billion) fiscal stimulus spending won’t create enough jobs, making unemployment the nation’s “most pressing issue,” the Asian Development Bank said. “Investment projects in the stimulus package will generate jobs, but not enough to absorb the growing labor surplus,” the ADB said. “Infrastructure projects are generally less labor-intensive than export-oriented manufacturing.” The ADB cut its forecast for China’s economic growth this year to 7 percent from 9.5 percent in a report released in Hong Kong today.

I am more than a little skeptical about the 7% growth forecast – I think that will be a tough target to reach – and I suspect it will be further downgraded this year. The article goes on to say:

China will find it more difficult to create jobs than it has in the past, the ADB said. Between 2000 and 2007, 13.6 million non-farm jobs were created each year as growth averaged 10.2 percent a year, the ADB said. “Employment generation on this scale will be more difficult in the future because employment elasticity — the rate of employment growth to GDP growth — has declined in recent years,” the ADB said.

About 9 million jobs may be created this year by stimulus spending with growth in the region of 7 percent, said Wihtol. With 20 million migrant workers already jobless, that still leaves “quite a significant gap,” he added.

On a much more positive note last week’s South China Morning Post heralds a surge in real estate prices:

A countrywide surge in sales since the beginning of the year has injected a sense of optimism that the worst is over for the mainland property market and a sustainable rebound is under way. The market improvement was proven by inventory depletion as well as price stability in some cities, analysts said.

While optimists said home buyers had regained confidence after the government’s stimulus package including falling mortgage loans and lower transaction tax expenses, some said the rebound was spurred by pent-up demand and bargain prices. They were also concerned that prices were not following deal volumes higher.

“It is definitely a sustainable volume recovery,” said Lee Wee-liat, a property analyst at investment brokerage Nomura International HK. Mr Lee based his call of a rise in demand since February – following a short-term rebound by the end of last year – on data compiled by Nomura showing a widespread surge in deal volumes nationwide last week.

The number of property deals was up on the previous week’s sales by 24 per cent in Beijing and Tianjin, and 71 per cent and 19 per cent higher, respectively, in Qingdao and Dalian, the data found. In Shanghai, 19 per cent more properties changed hands. Guangzhou and Shenzhen recorded slight volume declines on the week, Mr Lee said, but remained at around the highest levels seen in the two cities for two years. The increasing pace of sales was beginning to reduce unsold housing inventory, he said.

I have to admit that as a former investment banker I always take bullish statements from members of the selling profession with a big grain of salt. The Guanghua Students Monetary Policy Committee discusses property prices in each of its weekly meetings, and I don’t remember any of their comments being this optimistic. Needless to say the rebound of housing prices is very important both to confidence and to bank portfolio quality.

On a different note I found another very interesting article in today’s South China Morning Post:

Shenzhen foreign-exchange dealer Fang Zhen has been worried for months by a surge in people exchanging yuan for Hong Kong dollars based on fears that the mainland currency would plummet in value amid the financial crisis. The fears were so strong that they drove up demand for and the price of the Hong Kong dollar on the black market.

People soon realised they could make quick money by buying Hong Kong dollars at official banks and selling them on the black market. Mr Fang said he had reported his concerns to his superiors at the China Construction Bank and industry supervisors at the People’s Bank of China. Since October, many people in Shenzhen had discovered they could make a profit from currency trading between official banks and the black market. The margin between the buying price for Hong Kong dollars listed by state banks and the selling price set by black market dealers was growing. By the Lunar New Year, the gap was up to half a percentage point, Mr Fang said.

The widening spread between the official and underground prices was spurred by expectations that the central government would heed calls from influential think-tanks since late last year for depreciation of the yuan against the US dollar, to help beleaguered exporters.

Two weeks ago I wrote about the latest (rumored) reserve figures for January and surmised that there were at least $20-30 billion in hot money outflows that month. The SCMP article is consistent with my assumptions.

And finally, on a completely different note, my student Gao Ming is writing a paper that involves a mention of the Mexican crisis in 1982. He asked me some questions about President Lopez Portillo’s failed attempts to defend the peso, and that question led to some searching. In so doing I dug up an old quote that I had forgotten. During the oil boom of the latte 1970s, when every expert knew that oil prices would soar forever and would result in a major realignment of geopolitical forces, the president, presiding over Mexico’s then-massive oil wealth, ecstatically announced that his job was to administer the era of Mexican abundance (“¡Vamos a administrar la abundancia!” he proclaimed).

He went on to say: “En el mundo de la economía los paises se dividen en dos: los que tienen petróleo y los que no lo tienen. ¡Y nosotros lo tenemos!” which translates as: “In the world of economics there are two types of country: those that have oil and those that don’t. And we have it!”

What does this have to do with China or the world financial crisis? Perhaps not much, but it is good to remind ourselves about how utterly wrong we can be about predicting major changes or historic turning points. By the way Gao Ming’s favorite part of the story was my telling him that for years after his failed defense of the peso (“We will defend the peso like a dog!” he shouted), whenever ordinary Mexicans saw him in public they started barking like dogs. Mexicans have never lost their very healthy skepticism, it seems.

About Michael Pettis 166 Articles

Affiliation: Peking University

Michael Pettis is a professor at Peking University's Guanghua School of Management, where he specializes in Chinese financial markets. He has also taught, from 2002 to 2004, at Tsinghua University’s School of Economics and Management and, from 1992 to 2001, at Columbia University’s Graduate School of Business.

Pettis has worked on Wall Street in trading, capital markets, and corporate finance since 1987, when he joined the Sovereign Debt trading team at Manufacturers Hanover (now JP Morgan). Most recently, from 1996 to 2001, Pettis worked at Bear Stearns, where he was Managing Director-Principal heading the Latin American Capital Markets and the Liability Management groups.

Visit: China Financial Markets

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