China has declared war on poverty. The decision came after the outbreak of the COVID-19 pandemic that delivered a severe blow to the country’s national economy, disrupting its long-term growth.
A 6.8% decrease in GDP logged in the first quarter of 2021 gave a serious cause for concern to the Chinese government. Under the circumstances, the country decided to fight poverty and unemployment.
Thus, China commits to create additional 9 million jobs. Moreover, the government intends to maintain the unemployment rate at about 6%, that is, within the April level. Before the outbreak of the virus in Wuhan, China’s unemployment rate was 5.2%.
Like in the United States, Chinese citizens who have stopped actively looking for work are not included in the statistics. At the same time, The Wall Street Journal pinpoints significant differences in the measure of unemployment figures. In the US, people are classified as unemployed if they are residents of a particular state who have not worked for a specific period of time (for example, those who are sent on unpaid leave). In China, rural to urban migration is not included in the measure. According to China’s National Bureau of Statistics, more than 174 million rural residents migrated in urban areas in 2019 in comparison to only 122.5 million in the first quarter of 2020. Based on BNP Paribas estimates, "as many as 132 million Chinese workers were at one point unemployed, temporarily displaced or furloughed this year—or about 30% of China’s urban workforce."
In addition, the social protection system in China is less responsive to the needs of citizens, unlike the United States where unemployment benefits have been increased by $600 per week. Thus, if the pace of employment in China slows down, it will exert a powerful effect on consumer demand and economic recovery.
Chinese exporters are now facing a decline in demand for their products overseas. All this jeopardizes the future economic growth, since exports are one of the drivers of the Chinese economy. Under the circumstances, the government decided to provide assistance to small businesses in the country, namely street vendors. In fact, the Chinese authorities have previously fought them in order to regulate spontaneous trade. According to Li Keqiang, premier of the State Council of the People's Republic of China, Chengdu created 100,000 jobs in a matter of weeks by allowing street vendors to work.
Previously, the government has already vowed to defeat poverty. According to official data, the number of people living below the poverty line fell to 5.5 million in 2019 from the previous 99 million, recorded 9 years ago. Some Chinese provinces define poverty as per capita income of less than RMB3,500 ($500) a year. At the same time, over 40% of the Chinese population, around 600 million people, earn less than RMB1,000 ($140) a month. Such a small sum of money is not enough to rent an apartment in a city, let alone to buy food.
Economists approve of China’s initiative because small businesses and low-income people were hit the hardest during the pandemic. Fan Lei, an economist at Sealand Securities, says the government has no other option but to pursue the chosen course. This will help China to create additional 2 million jobs. At the same time, the decision is unlikely to somewhat affect the economic recovery in the country in the long term.
