New Year = new fear for graduates

As we enter the Chinese year of the Ox, what does the future have in store for China's young? Will Hodges investigates.

At the start of 2009 China's economy officially overtook Germany's as the third largest in the world, behind only those of Japan and the US. As China enters the Year of the Ox, however, there are worrying signs that the tracks are beginning to come off the economic treadmill that has seen the Asian tiger become the one of the fastest growing and most industrially ambitious nations in the World.

China has enjoyed an extended boom of high economic growth with its GDP increasing by 10% or above year-on-year. A large part of its success can be attributed to two factors: first, its capacity to mass-produce goods at low cost, due to low labour costs; second, its capacity to export finished products cheaply with the help of a weak currency. Helped by these factors China has effectively become the world's factory.

Recently, however, the global economic downturn has begun to have an effect on even this most turbo-charged of world economies. High oil prices during the first half of 2008 followed by a drop in spending by consumers in the West has stifled demand for Chinese produced goods, severely hindering its manufacturing industry. At the same time, rising income levels and standards of living in China on the back of its growing prosperity has increased the knock-on price of the goods it produces, reducing its competitiveness on the world stage and its ability to undercut goods produced in western or more developed countries.

Recent figures show that China's GDP growth fell to 6.8% in the fourth quarter of 2008, down from 9% in the third quarter and just over half its 13% pace in 2007. Whilst 6.8% still sounds a lot (particularly when compared to the negative GDP growth currently being experienced by most Western economies) it still represents a significant drop, you might even say a 'recession' relative to recent years. The rate of decline is worrying for Chinese officials who aim to keep economic growth above a minimum level of 8% per year - the official rate China needs to grow by to avoid social unrest (even though that number has no sound economic basis).

The government's biggest concern may well be the fate of its graduates. A growing middle class has encouraged greater and greater numbers of young Chinese to pursue a university education with the number of university leavers swelling to a record level of 5.59 million in 2008, an increase of 640,000 people compared with the previous year. Equally large numbers choose to go abroad to pursue further study in Europe, the US and Australasia.

However, with a growing university community, unemployment amongst Chinese graduates has also been increasing substantially and it is only set to get worse. The unemployment rate amongst Chinese graduates is now over 12%, three times higher than the national average. Recently, many graduates from China's urban universities have been forced to seek lower paid work in rural areas as child carers or domestic helpers with limited professional opportunities on offer. By the end of '09, there will potentially be 1.5 million university students out of work.

Fortunately there is good reason to hope that by midyear the economy will regain some traction as the Chinese government's own fiscal stimulus package begins to kick in. A four trillion yuan ($585 billion) package of infrastructure spending, subsidies and tax cuts for businesses has been outlined, though some sources have accused the plan as a "fake". It is feared that the Chinese government will end up financing less than one-third of the planned spending; most of the rest will have to come from banks, which in the current climate will likely be reluctant to lend.

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