College Graduates May End Up Delivering Your Milk Tea

(Bloomberg Opinion) -- Is it possible that socialist China gives its workers less job security, satisfaction and protection than the U.S., the world’s most capitalist society? In the coronavirus age, that certainly seems to be the case.

While Americans are getting showered with helicopter money, the Chinese have been left empty-handed. Of Beijing’s various stimulus policies, only 500 billion yuan ($70.7 billion), or 0.5% of gross domestic product, is slated for social security expense relief. The funds that are getting doled out have ended up in the wrong places. Instead of paying salaries, some entrepreneurs are using the 1.8 trillion yuan of re-lending facilities earmarked for small-business loans to buy apartments and invest in wealth management products.

China could say its labor market is more resilient and that jobs-for-life still exist at its state-owned enterprises. The urban unemployment rate came in at 5.9% in March compared with 6.2% in February. Meanwhile, Americans are losing jobs at the fastest pace since the Great Depression.

But China’s jobless number is a sham. Of the 442 million urban workers, over one-third, or 174 million, are migrants. The statistics bureau doesn’t consider them unemployed; rather, they’re outside the local labor force altogether, now that tens of millions are not able to return to cities because of lockdowns or dismal job prospects. This is a gross omission, because many still hope for employment in the city.

Many speculated that China only launched its 4 trillion-yuan stimulus package in 2008 after 20 million migrants lost their jobs. Infrastructure projects gave them new opportunities to work. So why is China being so stingy this time?

A decade on, Beijing is clearly worried about its debt pile and balancing the fiscal budget. Unlike the U.S., personal income tax is tiny, accounting for roughly 4% of fiscal revenue. Corporate, value-added and social security taxes, on the other hand, make up over one-third of China's coffers. This explains why the government is a lot more comfortable cutting taxes for businesses and refunding their social security contributions, instead of laying out unfunded benefits for the unemployed.

But where there’s a will, there’s a way. While China’s total debt-to-GDP ratio is among the highest in the world, the central government is less burdened than Washington. Delivering helicopter money to the unemployed would be feasible.

One reason 174 million workers have been forgotten is that policy makers see them as flexible. After all, they did manage to shift from one low-skilled gig to another — morphing from construction workers in the post-crisis building frenzy to the delivery boys of the e-commerce boom. So what’s wrong with them going back to their villages and picking up farming again? They could be fully employed there, the thinking goes. They are “more able to absorb labor market shocks,” mused HSBC Holdings Plc.

Instead, policy makers have been fussing over university students. A whopping 8.7 million will graduate this year. What will Beijing do to this highly educated and possibly mutinous corps of fresh blood?

It’s perhaps no coincidence that Beijing shifted its tone just ahead of International Workers’ Day on May 1. Last week, Premier Li Keqiang emphasized the need to help migrants during a speech at the State Council, urging local governments to provide unemployment benefits and “minimum living guarantees.” These laborers are currently ineligible because they don’t have the city hukou, or a permanent residency card.

But there are plenty of holes in this plan. For instance, where exactly can a migrant worker collect his check? Different cities give different amounts of cash. For instance, in the laborer’s hometown outside Wuhan, it's 680 yuan per month, yet it's 1,050 yuan in Shenzhen, where he last worked. Municipal governments, whose fiscal receipts were growing at the slowest pace in a decade even before the outbreak, will have little incentive beyond squirming out of their obligations. 

Ultimately, the blame lays on the hukou system, which divides Chinese society into castes at birth. Beijing has been talking about reforming it for decades, with little progress. Chances are, Li’s speech was just a few slogans. All will be forgotten in a few weeks.

This is a dangerous level of neglect from the urban elites. Even before the virus outbreak, the supply of new migrant workers had trickled to just about 2 million a year compared with 8 million a decade earlier. That's partly because they are treated so badly. These laborers are kicked out of megacities on short notice whenever local officials in Beijing or Shanghai fancy capping the urban population. Meanwhile, not having a city hukou, they don’t have access to public healthcare or education.

This lockdown may have been the last straw for migrant workers who’ve tried to make ends meet. At least there’s land, food and shelter in the countryside. Why bother putting in long hours for a few extra bucks and having nothing to fall back on? Soon, our milk tea delivery boys will have university degrees. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.

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