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Japanese report: Expectations of an exacerbation of the unemployment crisis with the contraction of the Chinese manufacturing sector


A report by the Japanese economic newspaper “Nikkei” stated that China is seeking to boost consumption with a slowdown in services activity, amid mounting concerns about the contraction of the manufacturing sector and the consequent exacerbation of the youth unemployment crisis.

This came in conjunction with China’s announcement of a new measure to stimulate its domestic consumption, with activity growth slowing in the service and construction sectors in July.

Supporting measures include abolishing car ownership limits, speeding up urban renewal projects in major cities, and launching various campaigns that will encourage people to travel, eat and shop, according to the National Development and Reform Commission.

The State Council said all state departments and local governments should help push forward the 20 measures, but did not announce any financial support for them.

The National Bureau of Statistics indicated that China’s official non-manufacturing purchasing managers’ index fell from 53.2 in June to 51.5 in July, the lowest level since last December.

A reading above 50 indicates expansion, while a reading below this level indicates contraction.

Deputy Chairman of the Development and Reform Commission Li Chunlin said Monday that although the catering, tourism and film sectors recovered in the first half, some consumers are still reluctant to buy goods.

Lee added that people avoided spending because they had bad user experiences, which could be improved through policies.

Besides, he said, local governments should ensure that factory workers fully enjoy their annual paid leave so that they can spend money and help support the tourism sector.

Private business law

China passed its labor law in 1994 to ensure that workers can have 10 days of annual leave, but 72% of workers cannot use their annual leave allowance for various reasons.

The report added, quoting data from the Ministry of Human Resources and Social Security, that workers in the private sector, on average, do not get even four full days of annual leave per year.

Economists said China’s non-manufacturing PMI could return to contraction in the next few months, as previously launched supportive measures will show their effects later this year.

“The non-manufacturing sector showed a larger-than-expected slowdown in growth, and further declines could offset it with the downturn,” Robert Carnell, regional head of research, said in a research report.

“Looking at the collapse of the non-manufacturing sector, what strikes you is that most of the sub-components are already showing contraction,” he says.

And “the only element that stands out from the rest is the expectations, which seem outlandish and unrealistic compared to what’s happening elsewhere.”

He points out that while we believe that too many small measures will be implemented to improve the performance of the economy, including reducing restrictions on the private sector, we are not at all convinced that there is a financial bazooka waiting to stimulate the economy.

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