Can China Handle Massive Unemployment?
It’s an understatement to say that the job market is getting tight in China. That’s the inevitable conclusion from today’s WSJ cover story “China Faces Grad Glut After Boom At Colleges.” This corroborates a March article in China Daily that put on a positive spin on the situation with this headline: “More Teaching Jobs for Graduates.” The gist there is that the government will pay for schools to hire more teachers to soak up some of the graduate pool (gotta love Chinese media for looking on the bright side of things). China blogger Michael Pettis commented on this trend last month with some optimism about what this could mean for China’s future when he wrote:
“If more Chinese graduates are forced – by terrible job prospects – to consider starting their own businesses, the long term consequences for China should be positive although, as everyone running a small business in China will tell you unendingly, starting and running businesses here is extremely difficult and, what is worse, it is never easy to know when you are and when you aren’t legally compliant. Still, China really does need more entrepreneurialism and one of the unexpected benefits of the crisis may be to boost small businesses.”
The simple fact is that China will benefit over the long-term if college grads actually leverage their education to create value and be entrepreneurial rather than just use it to get hired to work in the bullpen fielding calls for Ctrip.com (CTRP) — see above photo. Though in the short-term, there could be some real pain.
So what
Now, if you’re a regular reader of this blog, then you know our Global Gains mindset. We’re immediately asking “Who benefits?” and “Who gets hurt?” by this big picture trend.
The losers, I think, are pretty obvious. They include companies such as 51Job (JOBS), which does job placement in China. Now, they’d be in a good place if they got paid by job seekers to help them find openings. Instead, 51Job gets paid by corporations who are looking to do recruititing…and there’s not a whole lot of recruiting going on right now.
Other losers are companies that cater to urban working professionals. These, after all, are what college graduates become, and there are fewer of them this year than there were in previous years. A company like Ctrip, which helps Internet-savvy Chinese book travel, looks like a clear example despite the fact that it’s well-run and a leader in the travel space in China. Its addressable market will just be smaller in the near-term, and the company may achieve lower growth rates as a consequence.
Winner winner chicken dinner
On the flip side, there are going to be companies that do benefit, and I think the obvious ones there are firms that help young Chinese people become more competitive job applicants. This quote from Jane Yang in the WSJ is illustrative: “There are no job prospects for someone like me,” she said during a quick meal at the school’s cafeteria. “I think I’ll just go to grad school.”