AS A BIDEN PRESIDENCY takes shape in the US, it’s worth wondering to what extent the hardline Trumpian stance on China will persist. While a fraying relationship is to some extent priced in, there’s now more to consider.
China’s labor market could become a key lever. For all of Beijing’s talk about boosting innovation and productivity to achieve so-called quality growth, little gets said of the hundreds of millions of working people who would actually fulfill President Xi Jinping’s ambitions. They may be the ones holding up the sky.
Days before the US election, Beijing unveiled its latest blueprint for the coming five years. It envisions an upgraded economy rooted in technical progress — fifth generation networks, automation, smart factories — and a turn inward, driven by domestic consumers and output. To reach their goals, state planners will need to boost productivity.
Yet a larger challenge looms: Can the labor market adapt? If it doesn’t, the quality growth that Xi’s hopes are pinned to won’t materialize, regardless of the heaps of cash thrown at it. Beijing doesn’t want to be held hostage to an unpredictable, volatile or even hostile US. This is the backdrop confronting Joe Biden’s presidency over the next four years. How the new US administration understands and navigates China’s own challenges matters.
If this isn’t the China of 2016, it’s not the same America, either. The last four years saw President Donald Trump try to reverse job losses in traditional domestic industries. But the US labor market now faces long-term changes because of COVID-19. More than 40% of American jobs lost due to the pandemic will eventually be gone, according to Brookings Institution researchers.
China’s focus is on “dual circulation” — a plan to create domestic supply and demand. One effect would be to reduce vulnerability to the kind of powers Trump flexed to choke Chinese tech giants through blacklists and trade restrictions. The likes of Huawei Technologies Co. and Hangzhou Hikvision Digital Technology Co. are trying to cut reliance on American technology. They’ll end up creating jobs at home and overseas in the process.
In China, COVID-19 worsened a slowdown that had already been gathering pace and pushed up unemployment. Manufacturing and sectors that had previously boosted growth were hard hit. As household incomes fell and people started feeling the pain earlier this year, jobs and social stability moved to the top of Beijing’s agenda. Employment was one of the most mentioned words in the 2020 Government Work Report to help navigate the year.
There are signs of a turnaround, but does China actually need traditional manufacturing jobs to come back? Something more may be required.
Official data suggest that Beijing is close to hitting its employment targets, creating nearly 9 million new urban jobs in the first three quarters. It isn’t clear what kind of work was generated, but state media continues to tout pro-employment measures. Last month, at the State Council’s executive meeting, Premier Li Keqiang noted that the jobless rate “of certain groups of populations and regions remains high.”
It’s no longer about the number of jobs, though. What increasingly counts is the type, and how productive they’ll be. The five-year plan’s big push for innovation won’t happen with a shortage of skilled workers. A study in July found that while real gross domestic product has expanded at an average growth rate of 10.5% since 2000, labor efficiency has fallen every year by 0.53%. That implies a negative impact of 2.52% on economic growth. The decline has been geographically uneven, but the researchers conclude “the deterioration in labor efficiency is a comprehensive problem for China’s whole economy.”
For now, subsidies and incentives have kept people in jobs and forced companies to retain headcount, but reskilling and upgrading needs to happen. Growth in the coming years will depend on how productive each Chinese worker is. High-tech industries depend on that as much as increasing capital. So-called total factor productivity from advanced industries plays a large role in China. The country needs this kind of investment from foreign employers. Last year, a survey found that new jobs offered by overseas companies dropped by 25%.
Over the next decade, more than 20% of China’s workforce is expected to be re-employed in high-end manufacturing. Workers will need clearer direction in this new environment on jobs, incomes and benefits. Already, state media is publicizing a host of new jobs like artificial intelligence trainers as officially recognized occupations that can bring big increases in pay.
Xi needs a not-too-hostile US president who doesn’t hit China where it could really hurt — social stability. Biden will obviously want to protect American jobs, but also has to take an interest in the global companies creating new ones in the US. Being shut out of China’s transformation — if it really happens — would be a big mistake.
Ultimately, US policy will have a marginal impact, but would be more effective if Beijing’s priorities are understood. China will look out for its own people. Without jobs, higher incomes and greater corporate competence, Xi’s promises to stay ahead in advanced manufacturing and industrial heft won’t amount to much. Biden needs to contend with this to manage the world’s most important relationship.