China’s youth unemployment rate in August has climbed to the highest level since a new system of record-keeping commenced in December. Economic slowdown and strict hiring policies are major contributing factors to this rise, say analysts. The data displayed by the National Bureau of Statistics on Friday shows that the unemployment rate for Chinese individuals aged between 16 to 24, not in schooling, has escalated to 18.8% last month. This is up from 17.1% in July and 13.2% in June. The urban unemployment rate, that covers all age categories, has risen by 5.3% in August, compared to a 5.2% increase in July.

However, finding high paying jobs is now an uphill task for the youth. According to Dan Wang, chief economist at HSBC, in the last three years, the high value-added city services sector, which was previously the main employer of fresh graduates, has contracted sharply. These sectors include real estate, finance and IT.

One important factor is the restrictive hiring policies stemming from a struggling economy. Firms are now hesitant to take on recent college graduates due to the costs and legal complications related to termination of employment. Such costs may include paying a sum equal to n+2 , wherein if a person has worked for 2 years, upon termination, the company is obligated to pay a 30-day notice plus 2 months’ salary.

Increasing competition in the job market is also a contributing factor to the surging unemployment rates. As new eligible individuals enter the job market before the previous batch finds employment, it exacerbates the unemployment situation. This also puts the younger demographic at risk of being trapped in stubborn, long-term unemployment. Erica Tay, director of macro research at Maybank, believes it adds to the risk of hysteresis.

The unemployment data has been in line with other disappointing numbers from China in recent weeks. Among these are retail sales and industrial production growing at a slower-than-expected pace. The world’s second-largest economy continues to face challenges due to a decline in the real estate market and weak consumer confidence, despite having made a lackluster recovery last year from the Covid-19 pandemic.

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