Fathom’s measure of the spare capacity in China’s labour market, the proprietary China Underemployment Indicator (CUI), suggests that around 14% of China’s labour force is underutilised or unemployed, performing roles with relatively little or no economic return. A glaring example of this is the time taken to complete the construction of a residential property in China, which according to Fathom’s proprietary measure is now a staggering seven years, reflecting both the mothballing of properties in the construction phase and a reluctance to declare them as ‘vacant’ even when they are complete.
As explained in a note sent to clients last week, this keeps resources (such as labour) tied up, helping to keep a lid on social unrest and labour strikes, which tend to rise when growth according to Fathom’s China Momentum Indicator (CMI) slows. But it is not a sustainable solution, weighing on productivity and aggravating China’s non-performing loan problem, while adding to excess capacity. With growth set to slow further from here, the cracks in China’s labour market are likely to widen, piling pressure on China’s policymakers to find a ‘new growth model’ that works. Until then, determined to maintain social stability, Fathom believes that China’s efforts to rebalance will remain half-hearted.
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