Are China's jobless numbers credible?

A stream of negative news coming out of China about deteriorating economic activity has deepened concerns about the health of the world's second-biggest economy. Many analysts now project China's GDP growth to fall below this year's official target of seven percent - which would be the lowest pace of expansion in over two decades.

Conventional wisdom suggests that faltering growth should lead to increasing levels of joblessness, as firms seek to downsize their activities and layoff excess workers.

However, in China's case, the government claims unemployment has remained stable at about four percent, with some economists even arguing that factors such as economic restructuring and demographic changes have contributed to a tightening of the labor market.

A new job engine?

For some time, Chinese policymakers have been striving to transform the Asian giant from being an investment-led, export-reliant economy into one driven by domestic demand. They also aim to generate at least 10 million new urban jobs this year.

As part of this economic restructuring, the more labor-intensive services sector has expanded in recent years, resulting in the creation of more jobs.

For instance, the sector's share in China's GDP has been rising steadily, with services now contributing to just under 50 percent of the country's total economic output in the first half of this year.

Moreover, China's ageing population has led to a decline in surplus labor, thus reducing the negative pressures on employment at a time of slowing economic growth, according to a recent report by the International Monetary Fund (IMF), titled "China's labor market in the 'new normal.'"

The IMF paper also points out that migrant flows and the employment of excess labor among state-owned enterprises (SOEs) - unique features in China's labor market - prevent a dramatic spike in unemployment.

The international body cautions, however, that "even though this labor hoarding by SOEs may mitigate negative impact on employment as the economy slows, prolonged reliance on it could reduce labor flexibility, leading to its inefficient allocation, limiting productivity gains."

Only registered unemployed

Notwithstanding the indications in support of a tightening job market, many economists doubt the reliability of China's official unemployment data, with some claiming the country's real jobless rate could be as high as 10 to 12 percent.

Sara Hsu, an assistant professor and expert on Chinese economy at the State University of New York at New Paltz, says the official statistics cannot be relied upon since they focus mainly on the total number of people who are registered as unemployed.

"But not everyone who is unemployed registers at the local employment service agencies, since benefits are insufficient," she told DW, adding that "we do not even know the labor force participation rate, which is essential in calculating the unemployment rate."

This view is shared by Matthias Stepan, a deputy director and China analyst at the Berlin-based Mercator Institute for China Studies (MERICS), who explains that the most vulnerable in China's labor market - such as migrant and low-skilled laborers doing precarious work and holding unstable jobs - are not included in official unemployment statistics at all.

"This is why Chinese statistical offices do not have the information available to provide any data that comes anywhere close to the reliability of job-market figures in Western Europe or Northern America," Stepan told DW.

Applying different means

Economists note that there are many difficulties involved in counting China's unemployed, such as the high mobility of Chinese labor and the sheer size of the nation's informal sector.

The IMF report says that the flows of migrant workers - estimated to be about 270 million in 2013 - are crucial to understanding China's labor market conditions. "These migrant flows are closely related to GDP growth and better reflect short-term dynamics in labor markets than do official unemployment rates."

But if China's official unemployment figures do not take into account many of these workers, then how can the Chinese government be certain about the number of jobless people in the country?

Shuaizhang Feng, an economics professor at Shanghai University of Finance and Economics in China, believes the authorities have a much better understanding of the current labor market conditions than the official unemployment figures would suggest.

"I think their decisions are based mainly on other sources of information, such as internal research reports or statistics from other sources," Feng said. China's National Bureau of Statistics also launched a labor force survey several years ago, although the data including unemployment rate have not been announced publicly, he told DW.

MERICS analyst Stepan said that, in addition to the official quarterly statistics, Chinese local governments and researchers apply different means of approximating the unemployment rate. "Based on survey data, their results most often show rates that are much higher than four percent."

But the data is not made public as the Chinese government is acutely sensitive about the unemployment issue, fearing that it could lead to social instability and threaten the Communist Party's tight grip on power.

Nevertheless, there have been growing calls for Chinese authorities to make the unemployment statistics more reliable by collecting better data and making the process transparent.

Structural challenges

China's labor market also faces an array of problems that could severely impact employment. "Things such as reforming SOEs and encouraging entrepreneurship are especially important in the mid- to long-term," said Professor Feng.

The job market is also facing the issue of skills mismatch. "The lack of coordination between the labor market and the education system is one of the major problems affecting not only the job market, but also productivity in China," said analyst Stepan.

Furthermore, there are challenges associated with the country's recent economic transformation as China's shift away from polluting companies in labor-intensive industries has caused a large number of unskilled workers to lose their jobs, say experts.

"The Chinese leadership relies on the creation of jobs in the service sector to compensate for the losses in the industrial sector. And reform measures support the establishment of new private enterprises," said China expert Stepan.

But most of the new enterprises are small businesses with only a handful of employees, and many of them close operations within months' time, he noted.

Adding to the list of issues is a lack of effective means for workers to secure their rights and a ban on independent trade unions. The Chinese government, say analysts, needs to increase its efforts to tackle these challenges in order to prevent a sudden and damaging spike in the number of unemployed in the country.