Editor's note: The following article was translated and edited from an article that first appeared in the Chinese edition of the Wall Street Journal. It discusses the mounting evidence that China's economy is slowing down, as evidenced by a new report that suggests that China's labor market is shrinking.

Last Thursday (August 30), HSBC released it's monthly "China Manufacturing Purchase Management Index" (PMI), the results of which suggest that China's labor market is shrinking, thereby adding to the growing amount of data that supports the claim that China's economy is in the midst of slowing down. The report, an evaluation of factory activity and employment in China for the month of August, clearly shows that China's labor market remains in the doldrums, with the PMI dropping from 49.3 to 47.8 month over month, and continuing a 10-month trend of being under 50. PMI values above 50 indicate economic growth and below 50 indicate economic contraction.

Experts believe that the cause behind the downturn in the manufacturing industry is primarily due to a slowdown of trade growth and the contraction in real estate investment. From January to June of this year, China's exports grew by only 1%, while exports from prominent coastal regions such as Shanghai, Jiangsu Province and Zhejiang Province, in fact, declined. In addition, the employment sub-index of the PMI was 47.7 for the month of August—unchanged from July—suggesting that Chinese businesses are continuing labor reductions for the sixth consecutive month.

Earlier reports pointed to reductions in the labor market

Prior to the release of the August PMI, there were already scattered reports of job cuts taking place in some parts of China. In one such report, economists for HSBC noted that there's evidence that an increasing number of companies located in coastal regions are undergoing labor reductions or plant closings.

There have also been indications that the number of labor strikes is increasing. According to records released by China Labour Bulletin, an NGO dedicated to following the collective actions of Chinese workers, there were a total of 37 labor strikes and protests in China during the month of July—double the number recorded for January of this year. It appears that an increasing number of strikes and disputes are related to a break down in wage negotiations.

In addition, previously released economic data for the third quarter indicates that China's economic slowdown during in the first half of 2012 will likely continue, placing added pressure on the nation's policy makers to either increase access to loans or increase government spending in hopes of spurring new economic growth.  

Difficulties in measuring the health of China's labor market

Trying to assess the true state of China's labor market is no easy task. For instance, at present, the number of unemployed Chinese is still much lower than what most countries experienced following the global financial crisis in 2008. And in the aftermath of the financial crisis, it is estimated that more than 20 million unemployed migrant workers returned to their hometowns, prompting the government to launch a large-scale stimulus spending plan.

Other indicators suggest that many companies are, in fact, still hiring, although the rate at which they're hiring has slowed down substantially. Take, for example, the scene at a government-organized job fair that was held in Beijing on August 30. Looking out over the crowd, it did not appear that the job seekers were overly anxious about finding work. Reporters interviewed Wei Yin, newly graduated from China University of Petroleum in Beijing, who said that she's looking for a job in the civil-engineering field, and that although she's only been looking for about a week, she's actually already found several decent job opportunities.

Also present at the job fair, Song Guibo, the Human Resources Manager for Beijing Vanke Property Service Co. Ltd., told reporters that his company has been trying to hire security personnel, receptionists and sanitation workers, but that they're having a lot of trouble finding people to fill these vacancies. Previously, his company primarily hired migrant workers, but in recent years, more and more of them have been staying in their hometowns, better able now to find decent paying jobs closer to home (due in part to the government's large scale stimulus and re-focus on non-coastal development). Consequentially, the increasing cost of living in Beijing, as well as the decreasing comparative advantage of Beijing wages is resulting in fewer migrant workers coming to the capital city to look for work.

According to the most recent data released by the government, the unemployment rate for the second quarter of 2012 was 4.1%, basically unchanged from the end of 2010. However, generally speaking, economists believe that this figure is not entirely reliable, in part because the data doesn't reflect the number of unemployed migrant workers, who are, by definition, difficult to accurately measure. 　　

Is the new labor law also causing the labor market to shrink?

Analysts have noted that the employment situation may very well lag behind changes in the overall economy. For instance, in 2008, a new labor law went into effect, increasing the associated costs to employers for laying off employees (social security payments, not being allowed to dismiss staff without cause etc.). Further, many employers are concerned that if China's economy suddenly improves again that they will be faced with a serious shortage of workers. For these reasons, somewhat surprisingly, many companies are actually trying to stop their employees from leaving.

For instance, in the eastern city of Wenzhou, the owner of a shoe factory recently told reporters that since the new labor law went in effect, it's been very difficult for him to scale back on labor. According to him, he's not "frying" his employees, they're actually "frying" him ("炒", the character for "to fry" also means "to fire"), as more and more of them leave him to look for better paying jobs in other factories.

In addition, according to Chen Shao, an analyst for Macquarie Securities, while he was recently in Fujian visiting several factories, the owners told him that they were trying to stop their workers from leaving for better jobs, as they viewed it as a huge loss of face, not wanting their competitors or creditors to know that they were having problems retaining employees. 

Down but not out…yet

Guo Sheng (郭盛), the CEO of job recruitment website www.zhaopin.com, said that the number new employment opportunities listed on his website are slowing sharply, with annual growth down from 77% in 2011 to 17% in 2012. According to him, the bad news is that the increase of new job opportunities is slowing down; the good news is that overall job growth is still increasing (albeit at a slower pace).

Guo Sheng also told reporters that he has seen signs that the slowdown of the Chinese economy is adversely affecting wage growth. He noted that until late 2011 and early 2012, wage levels for workers were growing at an annual rate of 15-20%, but that since the second quarter of 2012, the economic slowdown and the decline in the inflation rate have resulted in a slower rate of wage growth.

Source: cnpension.net

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Keywords: China labor market shrinking job opportunities China China recession proof China economy slowdown