As Covid-19 eases, China faces huge unemployment challenge

Beijing

LIU Zhang, who runs an events company in Beijing, should normally be recruiting more people ahead of China's marathon season as he always does in the month of April.

Instead, he has laid off six employees before filing for bankruptcy, having also shut the three other branches of his company.

"At the end of February, we cut salaries to the legal minimum and we hoped things would pick up in the second half of the year," he said.

"But at the end of March, all major sports events were cancelled until further notice. We know there's no hope of any business until the end of the year."

Having largely curbed the spread of the Covid-19 virus, the Chinese government is now facing an equally daunting challenge - dealing with millions of layoffs, especially among migrant workers and those who work in small private companies.

Although Beijing has earmarked unemployment as its top priority, these smaller enterprises that make up most of the economy have little access to the financial relief handed out by the government.

Banks are reluctant to lend to them, and the tax breaks on profits they are not filing is not much use either. Many business owners have little choice but to wave the white flag.

While it's hard to pin the exact number of unemployed people today, analysts estimate that tens of millions are now out of work, with the number to continue rising this year as China looks set to record its slowest annual growth since the Cultural Revolution.

Officially, the unemployment rate stood at 5.9 per cent in March, up from 5.2 per cent last December, before the outbreak started.

However, that figure only takes into account urban unemployment, leaving out millions of independent and migrant workers - there are an estimated 290 million of them - who are not properly insured.

UBS said in a report that up to 80 million people could be out of work with the vast majority in the services sector.

"We estimate that GDP growth slowing to 1.5 per cent this year may lead to a net decline of a few million in urban employment instead of a net increase of 10 million each year in recent years. China's labour market pressure may be the most challenging since the late 1990s and early 2000s," UBS said.

Meanwhile, the Economist Intelligence Unit says urban unemployment could reach 10 per cent this year, meaning an additional 22 million workers being laid off compared to 2019. About half of them will not qualify for unemployment benefits.

While paying social insurance is compulsory for both the employer and employee, many small companies either report less than the real salary to avoid paying taxes, or simply don't pay unemployment benefits at all.

Employees often have little legal recourse to sue their employer. Even if the employee is entitled to benefits, it can be a tedious process to access them. And in many cases, the amount is also barely enough to get by.

"On Feb 12, I was informed via WeChat that I was laid off," said 30-year-old Liu Yang, who works for an e-commerce company in Beijing.

"I had to sign a document saying I would not sue the company in order to receive my salary in January. I was shocked and desperate so I signed it, as did my 12 other colleagues," she said.

She is now waiting for the company to report the layoffs to the Labour bureau, in the hope of receiving her benefits.

Unless she finds a job in the next two weeks, she will have to return to her hometown, where life is much cheaper than in the Chinese capital.

Millions of workers today face the same situation of shady labour contracts and lax enforcement, which mean they have little or no safety nets.

"The government has the resources for a more proactive fiscal policy to help companies in the service sector. They could, for instance, provide a basic income to all unemployed, but this is something China has never done before," said Professor Li Wei, associate dean of the Cheung Kong Graduate School of Business in Beijing.