Analysis: China’s Employment Offers Clues to Diverging Outlook

Last year, over 6,000 Chinese mainland companies listed on the mainland or in Hong Kong had more than 38 million employees, roughly representing 10% of China’s 470 million urban employees. This statistics allows these companies' employment to serve as a microcosm of China’s job market [para. 1]. Between 2019 and 2023, data from these companies showed that industries driven by external demand fared better regarding employment than those relying on domestic demand [para. 2].

However, export-focused sectors are increasingly facing threats from protectionism, supply chain decoupling, and intensifying price competition, which cast doubt on the sustainability of their financial performance. Conversely, industries driven by domestic demand, such as real estate, finance, internet platforms, and logistics, are not expected to improve significantly from the previous year's performance [para. 3][para. 4]. Consequently, the growth rate of employment among listed firms is likely to slow further, with more companies potentially shrinking their workforce or cutting salaries. This situation would lead to a less optimistic outlook for consumer spending and the real estate market in China [para. 5].

From 2019 to 2023, the average annual increase in the number of employees at listed companies was 3.4%. Despite economic turbulence, employment generally expanded. However, the growth rate slowed considerably in the last two years, from 5.5% in 2020 and 6.3% the following year to 2.9% in 2022 and 2.1% in 2023 [para. 6][para. 7]. Notably, 2023 marked the slowest pace in the four-year period, even though it was the first year after the loosening of pandemic-era controls [para. 8].

During 2020, 38% of the listed companies saw a decrease in employee numbers compared to the previous year. This figure dropped to 34% in 2021 when the pandemic was relatively under control in China. However, it bounced back to 43% the following year, likely due to repeated outbreaks [para. 9]. Interestingly, despite the lifting of all Covid restrictions, the percentage reached its highest at 46% last year [para. 10].

Between 2021 and 2023, labor market experiences differed among sectors, reflecting the better performance of industries driven by external demand. Sectors such as logistics, automobiles, auto parts, semiconductors, and chemicals saw double-digit increases in employee numbers. The workforce increase in logistics was closely linked to the rise of e-commerce, while other industries owed their employment growth to strong exports. However, these sectors are also currently involved in debates regarding overcapacity [para. 11][para. 12]. Conversely, industries like real estate and insurance, which are more reliant on domestic demand, downsized their workforces [para. 13].

Pay growth also tells a story about the job market. Employees of listed companies saw the biggest hit to their pay in 2020, with 52% of companies reporting reduced average pay and an overall average wage decrease of 1.8% year-on-year [para. 14]. Although the overall average wage increased by 13% in 2021, growth fell to an annual average of 6% in the subsequent two years [para. 15].

In summary, listed companies were cautious about layoffs in 2020 due to the harsh business environment but significantly cut wages. However, in 2022 and 2023, companies were more willing to reduce their workforce while retaining key members, leading to higher average wages [para. 16][para. 17]. Initially, many companies assumed the setbacks were temporary and were reluctant to lay off employees. But facing persistent problems in 2022 and 2023, they chose to lay off less important employees while retaining core staff [para. 18].

Vincent Chan, a China strategist at Aletheia Capital, provided the analysis, which was edited for clarity and length [para. 19].