China struggles with sharp rise in unemployment

China is struggling to cope with a rise in unemployment in the wake of the coronavirus pandemic, with payment of benefits stalling and questions being raised about the real number of jobless in the country.

The Chinese economy has been pummelled by the health crisis, with gross domestic product falling 6.8 per cent in the first quarter, after a national lockdown brought the country to a standstill. Beijing has lifted restrictions on most regions in a bid to restart the economy. But some analysts say the country’s social safety net is not supporting the unemployed.

The Ministry of Human Resources and Social Security said last week that 2.3m people received jobless benefits in the first quarter of this year, the same as the previous quarter. Yet the nation’s official unemployment rate rose to 5.9 per cent, or 26m, in March from 5.2 per cent, or 23m, in December.

Lu Hai, a professor at Peking University’s Guanghua School of Management and an expert in China’s labour market, said the situation could deteriorate further as the export sector, a significant employer, was hit by lockdowns in markets such as Europe and North America.

“Job positions may fall another 10-15 per cent without policy intervention,” said Prof Lu.

Zhuang Bo, an economist at TS Lombard, the research group, said the real jobless population could be more than double the official number if the 50m migrant workers unable to find jobs outside their home province were included.

Beijing doesn’t lack resources. China’s state-sponsored unemployment insurance premium grew to almost Rmb600bn ($85bn) at the end of last year from Rmb98bn in 2007. That leaves plenty of room for jobless claims worth less than Rmb2,000 a month.

But most insurance holders work for large employers, led by state-owned companies, which tend to keep their workforce regardless of the state of the broader economy. By contrast, most small and medium-sized enterprises, the nation’s main employers, do not provide unemployment insurance and are more likely to cut headcount.

“There is a mismatch between holders of unemployment insurance and those who really need it,” said Li Zhen, a professor at Renmin University in Beijing who specialises in social security. “That makes it difficult to hand out jobless benefits.” 

“China’s social security system has failed to serve its purpose when it is needed the most,” added Mr Zhuang.

China’s restrictive domestic migration policy has made it particularly onerous for those who work away from their native cities. Employees who have been made redundant must return to their hometown to apply for benefits even if they pay social security taxes in another city.

Michael Li, a former marketing manager in Beijing, chose not to return to his hometown of Enshi, a city in Hubei province, to claim unemployment insurance. “The government is offering me jobless benefits of a poor county while asking me to pay taxes like a rich city resident,” said Mr Li. “This is not fair.”

Many of China’s unemployed have instead shifted their focus to finding new work.

“It takes a great deal of effort to apply for unemployment benefits that are barely enough to support myself,” said Wu Zelei, a Shanghai-based investment researcher who lost her job in February. “I’d rather count on myself.”

Additional reporting by Emma Zhou and Xinning Liu

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