When I was in China I noticed some curious articles in the local paper. They suggested that firms in the coastal areas were really struggling, with a big drop in export orders from Europe. GDP growth was slowing and there was lots of pessimism. At the same time they suggested that the labor market in Chinese cities was very strong. I also noticed the following sign in a hair cutting salon:
5 positions: 8000 to 20000/month
5 positions: 6000 to 15000/month
20 positions: 3000 to 10000/month
10 positions: 2500 to 8000/month
I can’t read Chinese, but my wife told me the positions ranged from managers down to entry level hair cutters. The salaries are in yuan, so divide by 6.3 to get dollars. Then I started seeing these signs in lots of other businesses. This is all very anecdotal, but consider the following story:
- On September 26, ZHANG Yansheng, an official with the National Development and Reform Commission, said that although China’s GDP growth had slowed to 7.6 percent in 12Q2, the number of new jobs in urban areas still managed to increase by 9.1 million in the January-August period. The figure was only 11 million annually during the 2006-2010 period.
- Despite decelerating economic growth, China’s current employment situation is significantly better off than in the 11th five-year period when the nation’s GDP growth reached 11.2 percent year-on-year.
Even taking into account the fact that China’s urban population is twice the total US population, that’s a rather striking number—more than a million jobs a month. I don’t know if the numbers are accurate, but casual empiricism suggests that the service sector in China’s cities is growing rapidly.
It’s true that the SOEs are engaged in a lot of wasteful investment, but let’s not lose sight of the fact that 70% of the economy is private, and in some respects more unregulated than the US (and far more unregulated than Europe.)
It wouldn’t surprise me if lots of smaller service businesses did a lot of off-the-books transactions, if only to evade taxes. Beijing and Shanghai certainly don’t seem like places where consumption is only 35% of GDP.