U.S. stocks took a header on Tuesday after fresh economic data showed a continued softening in China’s economy. Another reason for investor unease is the Chinese government’s suspension of youth unemployment data, which comes amid a Communist Party campaign to limit transparency.
China’s collapsing real-estate bubble is raising investor worries about financial contagion as Country Garden, one of its largest developers, edges toward default. Press reports said Monday that trust companies affiliated with one of China’s largest financial firms, Zhongzhi Enterprise Group, missed payments owed to clients.
But unknown risks are usually more worrisome than those that are known. In recent months Beijing has been tightening the clamp on economic information shared with the public. A newly amended counterespionage law criminalizes sharing sensitive economic information. For “sensitive,” read negative. Not surprisingly, Chinese economic analysts have become tight-lipped.
Domestic law firms have been told by securities regulators to censor negative language about China from investor disclosures. Rather than discuss “adverse changes” in the economy, companies are to describe it as “evolving.” The Orwellian wordplay would be comically Communist if it didn’t bespeak a government-wide campaign to limit access to material economic information.
That’s also how to read Beijing’s decision to stop publishing the youth unemployment rate while it does what the government calls “further optimization” and research on the statistic. China’s official youth unemployment rate has doubled since 2019 to 21.3% amid President Xi Jinping’s zero-Covid policy and regulatory crackdown on its tech industry and others that threaten the Communist Party’s political control.
China’s major tech companies have shed more than $1 trillion in market value and laid off hundreds of thousands of workers over the past two years. For years the government boosted favored industries like real estate and electric vehicles, but these are now deflating. Several hundred EV startups have gone bust in the past few years.
Many young, highly educated Chinese who can’t find jobs in their chosen fields have dropped out of the labor force, which they describe as “lying flat.” One Peking University economist estimated that youth unemployment would have hit 46.5% this spring if the millions of workers who have stopped looking for work had been counted.
The government is telling college graduates to settle for lower-paying, blue-collar jobs. “The more ambitious you are, the more down to earth you need to be,” the Communist Party’s People’s Daily said last month. The censorship of unemployment data is aimed at preserving social stability amid a growing class of educated, disillusioned and restless young people who could become a source of political unrest.
But the price of this lack of transparency is less confidence in Chinese financial markets. Especially in times of economic weakness, a lack of transparency can feed financial panics. The government is trying to attract more foreign investment, but it’s giving investors another reason to run away.
