China's Stimulus Won't Offset Job Losses

On Bloomberg: China Stimulus Won’t Offset Job Losses, ADB Says

• March 31 (Bloomberg) -- China’s 4 trillion yuan ($585 billion) fiscal stimulus spending won’t create enough jobs, making unemployment the nation’s “most pressing issue,” the Asian Development Bank said.
  
  “Investment projects in the stimulus package will generate jobs, but not enough to absorb the growing labor surplus,” the ADB said. “Infrastructure projects are generally less labor- intensive than export-oriented manufacturing.” The ADB cut its forecast for China’s economic growth this year to 7 percent from 9.5 percent in a report released in Hong Kong today.
  
  Central bank Governor Zhou Xiaochuan said last week that “leading economic indicators are pointing to a recovery of economic growth” as stimulus spending kicks in. A collapse in exports because of the global recession has dragged growth to the weakest pace in seven years and cost the jobs of 20 million migrant workers.
  
  “The economy is reacting positively to the stimulus,” said Robert Wihtol, the ADB’s Beijing-based country director. “Recent economic data suggest that fixed-asset investment, the most important driver of China’s economic growth, is robust.”
  
  Growth will slow to “about 6 percent” this quarter from 6.8 percent in the fourth quarter and 9 percent for all of 2008, the ADB said. Exports will fall about 4 percent this year because of the “dismal outlook for external demand” it said.
  
  Still, stimulus spending will stabilize the economy in the second half and next year growth will rise to 8 percent, Wihtol said.
  
  Job Creation
  
  China will find it more difficult to create jobs than it has in the past, the ADB said. Between 2000 and 2007, 13.6 million non-farm jobs were created each year as growth averaged 10.2 percent a year, the ADB said.
  
  “Employment generation on this scale will be more difficult in the future because employment elasticity -- the rate of employment growth to GDP growth -- has declined in recent years,” the ADB said.
  
  About 9 million jobs may be created this year by stimulus spending with growth in the region of 7 percent, said Wihtol. With 20 million migrant workers already jobless, that still leaves “quite a significant gap,” he added.
  
  Migrant Workers
  
  A report by the government-backed Chinese Academy of Social Sciences in December estimated that 1.5 million of 5.6 million graduates wouldn’t find jobs by the end of last year.
  
  The government should strengthen the country’s social protection programs, especially for migrant workers, the ADB said. A better social safety net for welfare, retirement and education may encourage private investment “by reducing people’s precautionary saving,” the ADB said.
  
  A stronger social safety new would help China rebalance its economy away from an emphasis on capital spending and exports, the lender said.
  
  The government’s effort to rebalance the economy are “lagging in several areas” and it should hasten reforms, the report said. Household consumption as a share of GDP was 36.3 percent in 2007, “one of the lowest ratios in the world,” the lender said.
  
  Stimulus spending will add as much as 4 percentage points of growth this year. Because this is concentrated on investment projects “it is unlikely to shift the growth pattern to one driven more by consumption, the ADB said.
  
  The nation’s world record $1.9 trillion of currency reserves are forecast to rise to $2.2 trillion this year and to $2.5 trillion next year, the lender said.

ps: Can China Lead The World Out Of Recession? :p3