China's Real Unemployment Rate Is Three Times Higher Than The Offical Number

When it comes to fake data, China is in a class of its own: between fabricated export and import numbers (where hundreds of billion in capital flight are hidden), to massaged, goalseeked GDP "data", Chinese economic reporting has become a laughing stock across the developed world. Just last night, we showed a Goldman analysis according to which China was also misrepresenting its broadest credit aggregate, Total Social Financing, by hundreds of billions if not more as it was not accounting for shadow banking flows that did not end up in the economy.

And now, based on a new report by Fathom Consulting, it appears that China is also dramatically misreporting what may be the one most critical for social stability metric, its unemployment rate, which when stripped away of the political propaganda, is more than three times greater than the officially reported rate.

According to Fathom, China's underemployment Indicator has tripled to 12.9% since 2012 even while the official jobless rate has hovered near 4% for five years.

Here Bloomberg confirms what we said last year, namely that the risk of a social upheaval as a result of millions of newly unemployment workers in a "deregulated economy", is why China quickly went back to its old ways unleashed the recent record amount of debt. To wit: "the weakening labor market may explain China's decision to uncork the credit spigots and revive old growth drivers in an effort to stabilize the world's no. 2 economy."

Leaders have stressed that keeping employment stable is a top priority. Fathom's data shows that while mass layoffs haven't materialized, the number of people not working at full capacity or hours has increased.  "The degree of slack has surged in recent years," analysts at the London-based firm wrote. "China has a substantial hidden unemployment problem, in our view, and that explains why the authorities have come under so much pressure to re-start the old growth engines."


Leaders of the world's most populous nation have promised to slash excess capacity in coal mines and steel mills while at the same time ensuring that the economy grows by at least 6.5 percent this year. Across the nation, state-backed 'zombie' factories are being kept alive by local governments to keep a lid on any social unrest. To keep the plants ticking over, employees in some cases have been asked to work half the time for half the pay.

Meanwhile, the official registered unemployment gauge is notorious for not changing during economic cycles. In other words, just like most other Chinese economic indicators, it is a total fabrication. It's compiled from the number of people who register at local governments for unemployment benefits, which excludes most of the nation's more than 270 million migrant workers. Another official jobless rate, just as useless, based on surveys into major cities and supposed to be more accurate, stayed at about 5.1% as of April. That's also little changed in the past two years.

Though official data show employment weathering a slowdown, any deviation from that would touch a nerve for top Communist Party officials. "Job insecurity is a key driver of social instability – something that China’s authorities need to avoid at all costs," Fathom wrote.

Another issue: just like in the US, productivity has become a major threat to China's economy and as a result Beijing's top officials are also concerned about waning productivity growth. That's been "particularly weak" in the services sector, which absorbs most labor, the consultancy says. 

Oddly enough, the same situation is taking place in the US - one could ask if the BLS is taking hints from China's National Bureau of Statistics or vice versa.

While growth slowed last year to 6.9%, the weakest in 25 years, Fathom estimates it was just a fraction of the official pace: 2%. This also means that unless China manages to continue creating $1 trillion in new debt every quarter - an amount equal to about 10% of its GDP - to keep the local population semi-employed and content, it is only a matter of time before Beijing biggest fear, social instability, materializes.