Recruiting in China

Li Keqiang, in a speech released last week, said a 7.2% annual increase in China’s gross domestic product creates 10 million new jobs a year. The premier, therefore, believes each percentage point of growth produces 1.4 million jobs.

Morgan Stanley’s Ruchir Sharma, writing in the Wall Street Journal just before the release of Li’s speech, told us that each percentage point of growth results in 1.6 million to 1.7 million new jobs.

Beijing’s National Bureau of Statistics reported that last year China’s GDP jumped 7.7%. Applying Sharma’s formula, the economy should have created 12.3 to 13.1 million new jobs in 2012. Applying Premier Li’s formula, the number is 10.8 million new jobs.

So how many jobs were in fact created last year? The Ministry of Human Resources and Social Security reported that 767.04 million working-age Chinese—those aged 15 to 59—were employed in 2012, 2.84 million more than in 2011. In other words, the number of jobs increased 0.37% last year at a time when gross domestic product grew, according to NBS, 7.7%.

What makes this even more interesting is that China’s services sector, an obvious job-creator, is expanding fast according to NBS. Services accounted for 44.6% of GDP last year, up from 41.9% in 2011. Output from services grew 8.1% in 2012, a pace faster than GDP.

These figures are hard to reconcile. How can an economy growing in the high single digits with a quickly expanding services sector create so few jobs? There is no iron correlation between GDP growth and employment creation, but the two cannot be this far out of whack in an economy like China’s that has already passed its initial stage of development. In China, economic growth and employment should more or less move in step.

So how fast did China expand last year? Working back from the Human Resources Ministry statistics, the Chinese economy grew 2.0% last year if Premier Li’s formula is correct. It grew 1.7% to 1.8% according to Sharma’s relationship between growth and jobs.

And how fast is China growing now? In 88 cities surveyed by the Human Resources Ministry, the number of available jobs—termed “demand for workforce”—in the third quarter of this year fell by 139,000 (2.5%) from the third quarter of 2012. In 95 surveyed cities, the number of available jobs in the July-September period decreased by 232,000—4.0%—from the second quarter of this year.

Employment data for the third quarter is still fragmentary, but it is consistent with anecdotal evidence from China’s jobs market. For instance, observers report that this year is the toughest hiring season ever. College graduates have even been hired and fired in the same month as employers realized they did not need new hires.

Of course, job-creation numbers are not the only data points available. They are, however, generally consistent with private surveys, such as the China Beige Book and the widely watched HSBC purchasing managers’ manufacturing index.

The National Bureau of Statistics, on the other hand, has issued Q3 figures showing a robust economy, 7.8% growth in the period. Yet Premier Li Keqiang just-released speech on jobs contains a formula that undermines NBS’s creditability, and job creation numbers from the Human Resources Ministry show an economy that from last year to last quarter is moving from a state of low growth to one of contraction.