China’s unemployment rate for young people aged 16 to 24 hit headline-grabbing levels in June this year when it reached 21.3% (vs. 10.3% for OECD countries, after which the government stopped publishing age-related unemployment data.
A scholar from Peking University recently suggested this figure may even be underestimated as it does not account for the 16 million youths that are not in education, employment, or training nor actively seeking work (NEETs)– the so-called ‘lying flat’ phenomenon.
We have been investing in the Asian consumer for over 25 years, owning businesses in China covering everything from packaged food to medical devices, job platforms to pharmacy chains. Our goal is to capture sustainable domestic demand growth. If there is a publicly listed business with a product or service providing great utility to Chinese people, Arisaig have most likely researched it.
Not necessarily the target for our consumer businesses, which very often are focused on the Gen X cohort with their enviable established financial security, youth unemployment still matters to us as it has the potential to become an issue that weakens a country’s social and political stability. The longer a young person is unemployed, the more likely that future earnings structurally remain far below their peers and will leave them disillusioned and disenfranchised members of society.
The team has visited China four times this year to speak with the admissions office and careers guidance centre at a top-ranking university and interviewed around 10 students currently studying at universities in China.
The first point is that there is a currently a skills mismatch in China. Over the last decade, the smartest young people in China have dedicated years of study in finance and computer science with the hopes of landing lucrative careers in booming sectors such as banking or with the internet giants. The problem is that the best opportunities today are in areas of robotics and high-end manufacturing and these require degrees in engineering or mathematics at best.
Students are catching on. According to Fudan University’s Admissions Office, engineering became the most popular major last year. As a result, the ‘gaokao’ (China’s national undergraduate admissions exam) requirements for the engineering department are now higher than those for economics, implying a change in focus for the smartest of the current cohort. To help further ‘futureproof’ students and in response to priorities set by the Ministry of Education, Fudan is implementing a shift away from rote learning e.g., by making courses on critical thinking, liberal arts, and AI compulsory for first years.
Another area of the economy where there are plenty of jobs available is blue-collar work. We interviewed restaurant staff who said that job seeking was easy. In the worst-case scenario, they could go on an online recruitment platform such as Boss Zhipin to find a job in a large manufacturing factory and earn RMB 5,000 (c. USD 700) a month (with overtime), net of accommodation fees. The investor relations team of Boss Zhipin also confirmed that the blue-collar jobs market has indeed been more buoyant.
The challenge is that blue-collar work is not regarded as an option for many graduates. Even if their major is no longer in demand, many would rather delay entering the workforce than ‘lose face’ by accepting what they (and their parents) see as a bad job. Blue-collar work is looked down upon and does not offer nearly the kinds of ‘returns on education’ they expect. These young people would prefer to invest further by pursuing a master’s or PhD and hope that economic conditions improve in the meantime. The number of students registering for the annual postgraduate exam in China more than doubled between 2017 and 2023 (from 2 million to over 4.7 million). This trend is likely to continue while youth employment prospects remain weak. Of the 10 students we interviewed, all intend to do some form of postgraduate degree before trying to find a job.
As with many young people, not just in China, the issue is not just misaligned qualifications but misaligned expectations.