International | Jan 16 2009
By Rudi Filapek-Vandyck
A slump in property prices, increasing job insecurity plus lower wages growth; if anything has become clear over the past months it is that Chinese consumers are very much drawn into the same battle as their peers elsewhere. The main difference remains that no credit card binge has preceded the current downturn in China, and that the government might do a better job than elsewhere in propping up the economy. But in essence, the headwinds are there.
A recent survey conducted by Towers Perrin and Taihe Consulting, two HR consulting firms in China, seems to confirm all of the above. The survey reveals that 75% of Chinese companies surveyed are either in the process of revising or they have already revised down remuneration growth for 2009. Those that have already completed the revisions are now going for an increase of 5% (annualised), compared with earlier plans of an 8.5% wage increase this year.
Anecdotal evidence already suggests white collar workers too are feeling the pinch of tougher times visiting China, with many job starters accepting wages below their previous aspirations. Many now believe they will be unable to repay their education debt to the Chinese government.
The above mentioned survey also revealed 69% of participants are at present reducing the scale of staff hiring in 2009. Another 4% of respondents have cancelled hiring totally. No wonder, employees in China are reportedly worried about their job security in the coming months (another parallel with their peers elsewhere).
The situation is made easier by Chinese authorities apparently scaling back their ambitions for further job creation this year. In the previous years, the annual target had been to add 10 million net new jobs per year, but a recent update by the Ministry of Human Resources and Social Security suggest the target for this year has been lowered to only 9 million new jobs. In addition, the Ministry aims at re-employing five million laid-off workers including one million unemployed people urgently in need of financial assistance.
In further proof that Chinese authorities believe the task ahead is looking tougher, the Ministry’s update indicates it wants to cap the urban registered unemployment rate at 4.6%, this is 0.1% higher than previously stated. In an update on the Chinese labour market, analysts at Citi concluded: “Overall, the situation looks grim considering the potential unemployment of rural migrants.”
“Falling urban consumer confidence means that 2/3 of retail sales in China are experiencing headwinds”, explain the analysts. “It is questionable if rural consumers can be relied on to offset the weakness in urban consumption.”
Meanwhile, retailers in Chinese cities are relying on the same tactics deployed elsewhere: price discounting. As such, experts believe January retail sales figures should look good from the outside, but what about post-Chinese New Year? (Sounds familiar, doesn’t it?)
Citi believes the potential urban job shortage throughout China could rise to over 11 million in 2009. An estimated 13 million new job seekers will this year enter the labour force in Chinese urban areas. In combination with 3 million jobs anticipated to be vacated as a result of retirement, this still leaves total jobs creation 1 million positions short to absorb total new entrants.
The potential for social unrest this year has risen due to the fact that an estimated 130 million migrant workers from rural areas are working away from their home town, often for manufacturers whose orders from foreign buyers are falling. Chinese labour market data only comprise urban workers and job seekers.
The last available retail sales data for China are from November, when retail sales growth came in at 20.8% YoY, down from 22% YoY growth in October. Urban retail sales growth declined by 1.8ppts to 20.3% MoM, while rural retail sales growth fell 0.1ppts to 21.9% YoY.