China’s official, though highly doubted, urban unemployment rate jumped to 6.2 per cent in February, the highest on record, according to the National Bureau of Statistics. That was up from 5.3 per cent in January and 5.2 per cent in December. The data, however, definitely underestimates the real joblessness picture, since it is based on the country’s 442.47 million urban workers and excludes about 300 million migrant workers, who are often more vulnerable to economic fluctuations.

Even going by government statistics, the one percentage point jump from December to February suggests an additional 5 million people thrown out of work. If the official data of 6.2 per cent completely covered China’s total workforce of about 775 million, that jump suggests at least 48 million Chinese were unemployed at the end of February. But in practice, migrant workers often have a much higher unemployment rate than their better-educated urban peers.

Despite life in China largely returning to normal after the lifting of lockdowns, most economists believe the country’s unemployment rate is much higher than official data suggests, based on subway commuter statistics from urban areas. For instance, Liu Chenjie, chief economist at fund manager Upright Asset, suggested that as many as 200 million people might have lost their jobs or been underemployed due to the virus.

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The bigger challenge is that most job losses would havecome from sectors in which large numbers of underprivileged and unskilled workers were employed. These mass lay-offs would have largely come from China’s millions of privately run SMEs, and the millions more microbusinesses and self-employed people. The SME sector generates 90 per cent of employment in China, constitutes 80 per cent of its exports, and accounts for 70 per cent of its GDP.

Two-thirds of SMEs said they would be unable to stay in business for more than three months, given their current cash reserves, according to two surveys respectively conducted by Tsinghua and Peking universities, and China Merchants Bank, in mid-February.

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Despite the signing of the phase-one trade deal in January, the Trump administration has maintained punitive tariffs on nearly two-thirds of China’s exports to the US, leaving the average American tariff on Chinese goods at 19.3 per cent, up from about 3 per cent before the trade war. The global pandemic has dashed hopes for an early recovery in China’s export manufacturing.

China’s 80 million “household businesses”, which employ more than 200 million people nationwide, will be most susceptible to the shock as most of them are engaged in consumer service such as retail and eateries. Among the 20 million enterprises in China’s food and beverage industry, more than 95 per cent of them fall into that “household business” category.

Start-ups – the No 1 engine of job creation in modern economies – were hit worst. Of the companies that pulled the plug in January and February, roughly 55 per cent were start-ups under three years old. Venture capital deals have contracted more than 50 per cent since the onset of the crisis in the first two months of the year.

The pandemic is making a hard situation worse for China’s 9 million job-seeking college graduates this summer. Most companies are struggling to cut costs, and few would consider expanding their operations. And even if they are hiring, they would prefer to hire experienced people who can immediately create profits, rather than inexperienced workers fresh out of school. Job openings for university graduates plummeted 44 per cent year-on-year in February, according to Zhipin.com, a white-collar recruitment website.

During previous economic shocks – such as the Asian financial crisis in 1997 and the global financial crisis in 2007-08 – China was able to contain the rise in joblessness by ramping up stimulus measures with massive capital investment, increasing liquidity, ordering banks to lend, and demanding state-owned enterprises to refrain from lay-offs. The government is less capable of doing so now, as Covid-19 could not have come at a worse time – the economy is already saddled with structural slowdowns, high debt and slumping domestic as well as external demand. Moreover, Covid-19 is doing far more harm to the economy, and thus the job market, than any previous crisis as it cuts across almost all sectors.

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This year is particularly important for China’s leadership as it aims to establish a “moderately prosperous society” under the government’s 13th Five-Year Plan and a 10-year programme that looks to double the country’s economy between 2010 and 2020.

Despite the annihilation of its orthodoxy communist ideology due to its capitalistic market reform, the mandate of Communist Party rule has strengthened in recent decades amid spectacular growth and China’s rising global stature. However, massive lay-offs could cause rising discontent, increase social tensions, generate greater unrest, and fundamentally shake the legitimacy of rule in the country. ■ ■

Cary Huang is a veteran China affairs columnist, having written on the topic since the early 1990s