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Where Have All the Workers Gone?

China's Labor Shortage and the End of the Panda Boom

A worker rests in front of piles of steel bars at a market in Taiyuan, Shanxi province, October 19, 2009.
A worker rests in front of piles of steel bars at a market in Taiyuan, Shanxi province, October 19, 2009. (Courtesy Reuters)

It became fashionable after the Soviet Union’s collapse to say that breakneck economic growth was the only thing postponing the Chinese Communist Party’s (CCP) day of reckoning. Communist ideology was discredited, went the argument, but as long as the economic pie kept growing, citizens would set aside broader concerns and take their piece. But what if growth were interrupted by, say, a global financial crisis, collapse of world trade, and mass layoffs on the Chinese factory floor? The music would stop, the masquerade party would end, and Jennifer Connelly would smash her way through David Bowie’s bubble prison, so to speak.

Except that it didn’t. The Chinese economy faced exactly this cataclysmic scenario in the final months of 2008. Collapsing confidence and worldwide financial dysfunction forced businesses to cancel orders en masse. It was a huge blow to the Chinese manufacturing industry, compounding the weaknesses of a domestic economy already fragile after months of government efforts to cool a real estate bubble and overheating inflation. Tens of millions of Chinese migrant workers were laid off in the lead up to the Lunar New Year holiday in late January 2009. They returned to the countryside, passed the holiday with relatives, and waited for the crisis to abate.

Meanwhile, Zhongnanhai’s poobahs began to sweat. The global economy was plunging into the worst recession since the 1930s. China responded hastily with an outsized stimulus package that boosted confidence, but was insufficient to create jobs for both the laid-off workers and the millions of college graduates and young migrant workers who had flocked to urban job markets every year for decades. Early in 2009, Chinese officials were openly worrying about maintaining social stability in the Chinese countryside.

The economy in 2009 was indeed shaky by Chinese standards, if not in comparison to the rest of the world. China’s real GDP growth slowed to single digits -- the lowest it had been in nearly a decade. Accordingly, the China bears rose from hibernation to swarm op-ed pages and talk show panels, predicting the collapse of the Chinese labor market, an economic crisis, and a political crisis.

Instead, the labor market overheated.

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