Beijing, September 12, 2023 – China’s economic landscape continues to face turbulence as the nation grapples with an astonishing surge in lottery ticket sales and an alarming youth unemployment rate. In the first half of 2023, Chinese consumers astonishingly spent a staggering 273.9 billion yuan ($37 billion/£30 billion) on lottery tickets, representing a remarkable 50% increase compared to the same period in 2022.
This surge in lottery ticket purchases serves as a glaring indicator of the broader economic issues haunting China. With a record-high youth unemployment rate of 21.3% in June, the government took the unprecedented step of halting the publication of crucial data related to this concern, along with other economic indicators like the consumer confidence index, all of which painted a grim picture of a nation grappling with economic distress.
Numerous factors have contributed to this unusual spike in youth unemployment. Regulatory changes have rocked China’s education, real estate, and technology sectors, formerly attractive havens for fresh graduates, causing a substantial loss of jobs. The COVID-19 pandemic further exacerbated the issue, compelling many students to prolong their education as job opportunities vanished, creating a backlog of recent graduates competing for scarce positions.
However, the heart of the problem lies in the structural challenges that China’s economy faces. Many within the youth unemployment demographic aren’t recent college graduates but school leavers struggling to secure service-sector positions. This includes jobs in hospitality, security, courier services, and caregiving, which have become increasingly elusive. While the predicament of educated, creative college graduates facing unemployment remains a concern for a politically significant portion of the workforce, the more pressing issue is the lack of low-end job opportunities.
Over the past decade, China has witnessed a decline in manufacturing employment as factories sought cheaper labor in other countries. This shift has given rise to what economists from Stanford and Wenzhou universities describe as an “era of polarization,” characterized by rising wages for high-skilled professionals while low-skilled workers have seen their wages plummet.
Another challenge stemming from the proliferation of China’s informal sector is the hindrance it poses to local government’s ability to collect taxes. In China, personal income tax contributes to a mere 6% of total tax revenues, compared to 24% in OECD countries. The vast majority of the population pays no income tax at all, necessitating local governments to heavily rely on non-tax sources such as land sales.
However, the government’s attempts to curb speculative practices in the real estate sector in 2020, under the slogan “houses are for living in, not for speculation,” resulted in a decline in land sale revenues, further straining local government finances.
While there are glimmers of hope for a potential economic revival in China, including reduced deflationary pressures, a stronger yuan, and credit expansion, some experts remain skeptical about the long-term prospects. Sandeep Rao, Head of Research at Leverage Share, suggests that addressing the issue of decreasing affordability, given tight wages and rising costs, is crucial. Without tackling these underlying issues, repeated government interventions may become the norm to maintain economic stability.
A slowdown in China’s economy could have repercussions beyond its borders, particularly for the U.S. market. Previous slowdowns in China have sent ripples through the U.S. stock market, potentially prompting investors to divest from risky assets. However, the extent of the downturn’s impact on U.S. trade may be limited due to the intricate interdependence of both economies.
In conclusion, while China is taking steps to address its economic challenges, including measures to stimulate the property market and boost lending to small businesses, the path to recovery appears fraught with obstacles. Experts caution that a comprehensive solution must encompass addressing structural issues, ensuring affordable living costs, and diversifying global investment options. Solving these issues is crucial to ensuring China’s economic stability and prosperity in the years to come.
Yuval Noah Harari is an accomplished author with a Bachelor of Arts in Journalism. His passion for storytelling and commitment to journalistic excellence have been the driving forces behind his successful writing career. With a keen eye for detail and a deep understanding of the art of storytelling, Yuval has consistently delivered compelling narratives that captivate readers from all walks of life.