Is China re-balancing?
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.
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29. September 2012 at 12:33
A hair cut was $4. Let’s say 50/50 split with house.
Entry level at full blast is doing 600 cuts a month.
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Run the govt. like this, and we can let progressives live. The problem is how we make progressives as feel as desperate to improve their lot in life as a hair cutter in China.
29. September 2012 at 13:40
Fisher appears to be the only real business mind, the only non-egghead at the Fed:
http://www.reuters.com/article/2012/09/28/us-usa-fed-fisher-idUSBRE88R16V20120928
29. September 2012 at 20:44
Trying to figure out what is going on in the Far East can be mystifying.
For example, an executive for a large construction company in Thailand blithely told a newspaper (The Nation-Bangkok) that profits are down a little, largely because getting Burmese workers has become more difficult. They have to import labor, and that is getting more difficult.
Really? There are not enough Thai men out there looking for work? It seems taken for granted that Burmese will take the same jobs in Thailand that Mexican immigrants take in the USA, but, just like the USA, the whole topic is shrouded in a fog of dubious data. Except worse.
Morgan W: Fisher is a first-rate boob. Please read my reporting on Fisher at Marcus Nunes’s blog.
29. September 2012 at 22:53
I actually live in western Beijing where there are relatively few foreigners, and I am fairly sure that perhaps 60% of my transactions especially those for services are off book. A great sigh is issued whenever you ask for the official receipt (å‘票) and often times they will actually just offer to give you something for free(like a coke) instead of giving you the official receipt.
30. September 2012 at 07:33
Ben, Let’s hope the Burmese men are becoming more difficult because conditions are improving in Burma.
Rob, When I am in Beijing I stay in the Haidian district–what area do you live in?
30. September 2012 at 16:08
Scott, 1.1M jobs per month doesn’t seem that shocking. In the late 1990s, the US was consistently adding around 300K a month at 4% growth. So with an urban population at least twice the size of non-farms US and 8% growth, this is not crazy.
But another note of caution on the urban jobs number: about 40% of new “urban entrants” are simply reclassified rural people. (http://www.piie.com/blogs/china/?p=1508)
That means if there are roughly 1.5M new urban residents per month, about 600K are going to reclassified rural folk. Assuming half of those people are employed, that represents 300K of the 1.1M “new urban jobs”. Do you know how these numbers are accounted?
30. September 2012 at 17:55
DF, I don’t know, but I also put some weight on the fact that job growth is considerably higher than during the 2006-10 period, when growth in RGDP was considerably higher.
I’m not saying those numbers are great, but they are surprising for a country that seems to be in a major slowdown.
3. October 2012 at 01:31
Southern Haidian near Shijinshan(actually right on the border, the school I teach at is in Haidian and my apartment is in Shijinshan). I am always amazed at how the PPP figures don’t seem to do justice to the difference in purchasing power, and that is given that I am living in on of the most expensive cities in China. I’ve also spent some time in Xuchang which was significantly cheaper than Beijing(prices for food and services were probably less than half). The size of the underground economy in the capital city also suggests that GDP figures grossly underestimate standard of living.
3. October 2012 at 05:21
Rob, I agree, I had a big argument with another blogger on that point just a month back. He said China was one of the most expensive places he had ever visited.
3. October 2012 at 09:08
I remember that argument, maybe if you spend the whole time in Sanlitun or you insist on only buying western products and eating at western restaurants you could come away with that impression, but that is certainly not a very good way of judging purchasing power. I can have a good tasting, filling lunch for $1.60, most services are usually in that price range, utilities are nearly free(though housing is rather pricey). An hour and a half cab ride will only cost about ten dollars. Among those who adapt to have more Chinese-like consumption habits the joke is often made that it is almost impossible to get rid of all your money no matter how hard you try.
By the way, most of my students rather liked the idea of NGDP targeting.