For a long time, analysts and economists believed 8 per cent economic growth in China was necessary to create enough jobs to maintain social stability in the country. But China has fallen short of that line a few times now and there is no unemployment crisis. If anything, there is evidence of skills shortages in some parts of China.
The 8 per cent red-line myth has disappeared without a trace.
Guan Qingyou, a prominent economist and deputy head of the research at Minsheng Securities, a brokerage house, argues that analysts and policymakers need to update their toolkits to stay ahead of the game, and points out three examples of applying out-of-date techniques to the shifting reality in China.
1. The relationship between GDP and employment
The main reason Chinese policymakers care so much about the GDP growth rate is largely related to employment. The focus on delivering 7.5 per cent growth is based on the understanding that the country needs to maintain a 7.2 per cent growth rate to absorb 10 million new entrants to the labor market every year, according to the figure quoted by premier Li.
However, this widely accepted understanding is somewhat lagging behind the reality. Statistics shows that the correlation between GDP growth and job creation has been breaking down since 2010. We are seeing a curious situation where employment data remains strong while the economy is growing at its slowest pace in recent years.
China is shifting to a services growth engine
Guan suggests this situation is due to the fact that China’s economy and labor market is undergoing structural changes. China may be the world’s factory but the services sector has overtaken manufacturing as the largest part of its economy, as well as its new growth engine. The services sector has better capacity to absorb new jobseekers, according to Guan.
Rural surplus labor is reducing
More importantly, China has reached the so-called Lewis turning point: i.e. it is about to run of rural surplus labor. In the coming years, there will be less and less people entering the job market. Guan argues the real challenge for China in the future is labor shortage, not unemployment.
What about automation and the jobless future ?
Many people are concerned about a jobless future. However, automation and job elimination is not happening as quickly for the overall world economy as some fear. Also, there are policy and regulatory barriers that limit the speed of change.
If Amazon were to kill Walmart or if Walmart went to a mostly online model that would indicate the accelerated shift had happened. Meanwhile the changes and killing of other retailers is a way to track the shifts in employment in retail. This kind of exercise can be examined in each job segment. There are more efficient transportation companies and technology (self driving cars, multiple containers per truck, bigger container ships, Uber instead of taxis - part time people and not full time taxis etc...)
Amazon and Walmart are killing or transforming retailers like TJ Maxx. Amazon is five times more efficient than them in terms of revenue per employee. Amazon's revenue per employee is leaps and bounds above its competition. The only other one on our short list that comes close is CVS, but despite the public perception of the company as a retailer, it now generates the overwhelming majority of its revenues from its insurance programs, so it's partially miscategorized. Even so, it still doesn't come close to Amazon in terms of revenue efficiency; CVS would need to grow its sales by nearly 50% without adding a single staffer in order to catch up. Walmart? It would have to lay off over two-thirds of its employees or triple its same-store sales to even come close.
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The 8 per cent red-line myth has disappeared without a trace.
Guan Qingyou, a prominent economist and deputy head of the research at Minsheng Securities, a brokerage house, argues that analysts and policymakers need to update their toolkits to stay ahead of the game, and points out three examples of applying out-of-date techniques to the shifting reality in China.
1. The relationship between GDP and employment
The main reason Chinese policymakers care so much about the GDP growth rate is largely related to employment. The focus on delivering 7.5 per cent growth is based on the understanding that the country needs to maintain a 7.2 per cent growth rate to absorb 10 million new entrants to the labor market every year, according to the figure quoted by premier Li.
However, this widely accepted understanding is somewhat lagging behind the reality. Statistics shows that the correlation between GDP growth and job creation has been breaking down since 2010. We are seeing a curious situation where employment data remains strong while the economy is growing at its slowest pace in recent years.
China is shifting to a services growth engine
Guan suggests this situation is due to the fact that China’s economy and labor market is undergoing structural changes. China may be the world’s factory but the services sector has overtaken manufacturing as the largest part of its economy, as well as its new growth engine. The services sector has better capacity to absorb new jobseekers, according to Guan.
Rural surplus labor is reducing
More importantly, China has reached the so-called Lewis turning point: i.e. it is about to run of rural surplus labor. In the coming years, there will be less and less people entering the job market. Guan argues the real challenge for China in the future is labor shortage, not unemployment.
What about automation and the jobless future ?
Many people are concerned about a jobless future. However, automation and job elimination is not happening as quickly for the overall world economy as some fear. Also, there are policy and regulatory barriers that limit the speed of change.
If Amazon were to kill Walmart or if Walmart went to a mostly online model that would indicate the accelerated shift had happened. Meanwhile the changes and killing of other retailers is a way to track the shifts in employment in retail. This kind of exercise can be examined in each job segment. There are more efficient transportation companies and technology (self driving cars, multiple containers per truck, bigger container ships, Uber instead of taxis - part time people and not full time taxis etc...)
Amazon and Walmart are killing or transforming retailers like TJ Maxx. Amazon is five times more efficient than them in terms of revenue per employee. Amazon's revenue per employee is leaps and bounds above its competition. The only other one on our short list that comes close is CVS, but despite the public perception of the company as a retailer, it now generates the overwhelming majority of its revenues from its insurance programs, so it's partially miscategorized. Even so, it still doesn't come close to Amazon in terms of revenue efficiency; CVS would need to grow its sales by nearly 50% without adding a single staffer in order to catch up. Walmart? It would have to lay off over two-thirds of its employees or triple its same-store sales to even come close.
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