China Pathfinder: Q2 2022 Update
China’s economic growth slowed to 0.4 percent year-on-year in the second quarter of 2022, despite aggressive steps by authorities to support struggling companies, boost consumption, and address the spike in youth unemployment. These measures amounted to short-term firefighting. There were few signs of the fundamental structural reforms needed to put the Chinese economy on a sustainable long-term growth path. Beijing’s aversion to relinquishing economic control to market actors has laid the groundwork for more financial instability in the second half of 2022, including in the struggling property sector.
With the 20th Party Congress looming, we see little chance of a change in approach, even if the Chinese economy veers toward a hard landing. Some analysts point to episodic Q2 endorsements of market reform and the end of “campaign style” regulation as evidence of correction. Until more definitive policy reversals are evident, however, the outlook for liberal policy reform in China to address deep-seated structural flaws in the economy remains dim.
The bottom-line assessment for Q2 2022 shows that Chinese authorities were active in two of the six economic clusters that make up the China Pathfinder analytical framework: financial system development and competition policy. There were fewer developments in the innovation, trade, direct investment, and portfolio investment clusters. In assessing whether China’s economic system moved toward or away from market economy norms in this quarter, our analysis shows a mixed picture.
This issue of the China Pathfinder Quarterly Update highlights China’s youth unemployment problem and the dynamics between private and public sector employment trends. Absorbing a record 10.7 million new university graduates into the labor market was always going to be challenging during the pandemic, but in Q2, the effects of a shrinking economy, unending regulatory crackdown, and zero-COVID lockdowns in major Chinese cities pushed unemployment to new highs. The report dives into new hiring data for sectors targeted by the crackdown, statistics on recent graduates taking the civil servant exam, and survey data on expected salaries to assess the severity of China’s unemployment problem.