By Michael Lelyveld
The good news from China is that unemployment has dropped after the government cut social security costs.
The bad news is that the government is using one of the most unreliable measurements of employment in its inventory of suspect economic tools.
On Oct. 21, the Ministry of Human Resources and Social Security reported the good news that China’s registered urban unemployment rate fell in the third quarter to 3.61 percent, down 0.21 percentage points from a year earlier, the official Xinhua news agency said.
Zhang Ying, the ministry’s director of employment promotion, credited “the expanding economy and favorable policy measures” for the strong jobs performance, citing big tax and fee cuts designed to ease burdens on businesses this year.
The message from the ministry is that the government has been on the right track with its plan to lower business taxes and fees by nearly 2 trillion yuan (U.S. $282.6 billion) this year to spur economic growth.
A key part of the plan is to slash social security contributions by employers from 20 percent of wages to 16 percent. The cut since May 1 has so far saved companies 272.5 billion yuan (U.S. $38.5 billion), including reductions in costs for unemployment insurance and workers’ injury compensation coverage.
The total savings for employers were projected to exceed 310 billion yuan (U.S. $43.8 billion) by the end of the year.
But the cuts have been controversial because social security is already underfunded with an over-60 population of 249 million at the end of last year.
China’s basic social security covers 956 million people, the ministry reported on Oct. 22.
Based on ministry figures as of Sept. 30, total social insurance revenues have risen 6.3 percent this year, while expenditures have climbed 13.1 percent.
The government has planned to fill the funding gap by ordering state-owned enterprises (SOEs) to transfer 10 percent of their shares to the social security funds.
On Sept. 27, Finance Minister Liu Kun said that 67 centrally administered SOEs and financial institutions had already shifted shares valued at 860.1 billion yuan (U.S. $125.5 billion) into the funds. But the shares are considered illiquid and unlikely to support payouts.
The improved jobless numbers may help make the government’s case that workers are still better off despite the social security contribution cuts, since the reduction in costs will keep their employers viable in tough economic times.
The good news on jobs also comes at a critical time for the government’s policies following the official estimate that economic growth in the third quarter fell to 6 percent, its slowest pace since quarterly results were first published in 1992.
Last month, the International Monetary Fund lowered its growth forecast for 2020 to 5.8 percent from 6 percent previously, dimming hopes for a rebound in China next year.
Despite the growth slump, the economy had created nearly 11 million new urban jobs so far this year, Zhang said.
But the claims of success are likely to find few defenders, since the registered urban unemployment rate is notoriously unreliable as a measure of jobs.
Over the years, the registered urban rate has been used to conceal rather than reveal the true extent of unemployment and economic growth.
“The registered urban unemployment rate means exactly what it says. You’re unemployed only if the government is willing to count you as unemployed,” said Derek Scissors, Asia economist and resident scholar at the American Enterprise Institute in Washington.
The registered urban rate excludes the job losses of migrant workers without hukou, or household registration privileges, as well as rural unemployment, which is typically much worse.
“It’s never been accurate and at various times the government has acknowledged this,” Scissors said.
The 11 million new jobs that the ministry claims is also a gross figure, not a net number that includes losses, he said.
Instead, the government has used the consistency of the registered rate over time to convey an image of stability.
In February, a Bloomberg News commentary noted that the official unemployment rate from 2002 to 2017 never rose above 4.3 percent or dropped below 3.9 percent.
“It’s easy to see why officials want to paint a rosy picture of employment in China, given their mortal fear of labor unrest,” wrote Christopher Balding, a former associate professor at HSBC Business School in Shenzhen.
At the end of last year, the ministry reported the registered urban rate as 3.8 percent. A marginally more accurate “surveyed unemployment rate” for urban areas, including some migrant workers, has also varied little from the end-2018 mark of 5 percent.
A 2015 study for the National Bureau of Economic Research charted a similarly narrow band of the registered urban rate dating back to 1988, concluding from household surveys that actual unemployment from 2002 to 2009 averaged nearly 11 percent.
Given the diminishing economic growth figures announced by the National Bureau of Statistics (NBS), the lowering of the registered urban unemployment rate seems counterintuitive but still possible.
“The labor force is shrinking, and the pledged job cuts in old, polluting industries like steel and coal have not occurred. So urban unemployment could be lower or stable,” Scissors said.
Tapping social security
According to Zhang, the government has also made payments of about 27.5 billion yuan (U.S. $3.9 billion) to 750,000 enterprises this year “as a reward for their efforts to stabilize employment,” the official English-language China Daily said.
The tapping of social security funding is only one of the unusual ways that the government has tried to revive economic growth this year, highlighting the difficulty of turning again to options like massive infrastructure spending and property development that China has relied on in the past.
Since last year, the government has orchestrated a series of double-digit cuts in electricity rates for industry and commercial customers, passing the costs on to generators, coal companies and grid operators.
In July, the cabinet-level State Council and the powerful Politburo of the Communist Party of China (CPC) Central Committee also launched an intense campaign to promote culture, tourism and nightlife to boost domestic consumption as trade growth fell flat and the tariff war with the United States took its toll.
The official push included detailed plans for support of “nighttime catering, shopping, and performances” during expanded hours and encouragement of “new forms of tourism such as yacht and cruise tours.”
It is unclear whether such activities are contributing significantly to economic growth or whether they are meant to maintain an image of economic well-being. But in their absence, the official growth figures might well have been worse.