Analysis: China’s Employment Offers Clues to Diverging Outlook

27 Jun 2024

Last year, the over 6,000 Chinese mainland companies listed on the mainland or in Hong Kong had more than 38 million employees, representing nearly 10% of the country’s 470 million urban employees. To some extent, the companies’ employment can be seen as a microcosm of China’s job market.

Judging by the companies’ data from 2019 to 2023, my conclusion is that the employment situation among industries primarily driven by external demand outperformed that of their counterparts that rely on internal demand.

However, sectors focused on exports are facing growing threats of protectionism and supply chain decoupling this year. This is on top of intensifying price competition, casting doubt on the sustainability of their financial performance.

Meanwhile, industries driven by domestic demand — including real estate, finance, internet platforms and logistics — are unlikely to see their performance improve from last year.

As a result, the growth in the number of people employed by the listed firms will likely slow further this year, with more companies expected to shrink their workforce or cut salaries. Should that happen, the outlook for consumer spending and real estate in China will be less optimistic.

Workforce growth slowed

From 2019 to 2023, the average annual increase in the number of employees at the listed companies was 3.4%. It’s fair to say that in general, employment continued to expand despite economic turbulence.

However, growth slowed notably in the last two years, with the rate sliding from 5.5% in 2020 and 6.3% in the subsequent year to 2.9% in 2022, and 2.1% last year — the slowest pace in the four-year period despite 2023 being the first year after the loosening of pandemic-era controls.

In 2020, when the Covid pandemic was declared, 38% of the listed companies experienced a decrease in employee numbers compared with the previous year. The figure dipped to 34% in 2021, when the pandemic was under control to some extent in China. It bounced back to 43% in the following year, which could be due to the repeated resurgence of outbreaks.

What is puzzling, though, is the fact that last year the percentage hit the highest level seen in the past few years at 46%. That was in spite of all Covid restrictions being lifted.

If we look at the years from 2021 to 2023, or the period when the labor market deteriorated, we can see experiences of different sectors vary, reflecting the situation of external demand outperforming internal demand. Industries such as logistics, automobiles, auto parts, semiconductors and chemicals saw double-digit increases in employee numbers.

The increase of the workforce in logistics was closely linked to the upturn of e-commerce, while expansions in employment in the other industries were largely attributed to strong exports. These are also the sectors currently sparking heated debate regarding overcapacity.

In comparison, some other industries downsized their workforces, including real estate and insurance, which are more closely tied to domestic demand.

Pay growth also slowed

Employee pay provides another clue as to the state of the job market. Employees of the listed companies experienced the biggest hit to their pay packets in 2020, with 52% of the companies reporting reduced average pay, bringing the overall average wage down by 1.8% year-on-year.

In 2021, the overall average wage increased by 13%, but growth fell again in the following two years, with an average annual increase of 6%.

To sum up, in 2020, the listed companies were cautious about layoffs, but due to the harsh business environment, wages were cut significantly. In 2022 and 2023, the companies were more willing to cut back on employees, while reserving key members, which led to higher average wages.

In other words, in 2020, many of the listed companies presumed that the setbacks were temporary, so despite the significant impact, they were reluctant to lay off employees. However, in 2022 and 2023, they tended to believe that the problems would be persistent in the long term, so they chose to lay off employees deemed less important while retaining core staff members.