In a surprising turn of events, China’s leading private companies cut over 300,000 jobs in 2023, despite a slight uptick in revenue growth. According to a recent report from the All-China Federation of Industry and Commerce, the top 500 private enterprises collectively employed 10.66 million people last year, marking a decline of 314,600 jobs compared to 2022. This significant reduction in workforce has raised alarms regarding the private sector’s resilience amid a slowing domestic economy.
Employment decline Amid revenue growth
The data reveals a troubling contradiction: while employment in the private sector decreased, net profits for these firms increased by nearly 3% to reach 1.69 trillion yuan (approximately $239 billion). This juxtaposition highlights the ongoing uncertainty that businesses face in the current economic landscape. Analysts have pointed out that increasing automation and efficiency measures, particularly in competitive sectors like manufacturing, are contributing factors to the job cuts.
Harry Murphy Cruise, an economist at Moody’s Analytics, noted, “The fact that employment fell despite rising revenues highlights the uncertainty facing firms.” He added that the trends indicate a shift towards automation as companies strive to remain competitive while navigating challenging market conditions.
Shift towards automation in manufacturing
Manufacturing continues to be the dominant sector among China’s private firms, with 66.4%—or 332 of the top 500 companies—operating in this area, an increase from 322 the previous year. The industry’s shift towards automation and intelligent production aligns with China’s broader strategy to modernize its economy and address labor shortages. More than 60% of these firms reported having digitized their operations, according to the federation’s findings.
Despite these advancements in technology, the economic slowdown has heavily impacted employment rates. Major sectors, including real estate, internet services, automotive, and finance, have witnessed widespread layoffs throughout the past year. As a result, companies are curbing hiring, creating a challenging environment for job seekers.
Policy challenges and government response
The employment challenges faced by private firms are further compounded by policy uncertainties and restrictive regulations. These issues have led to an overall reduction in investment, particularly in sectors outside of manufacturing. Recent data from September’s purchasing managers’ index indicated that non-manufacturing hiring intentions were at their lowest since December 2022.
In response to the prevailing difficulties, Luo Wen, head of the State Administration for Market Regulation, announced on Monday the government’s intention to reduce institutional costs for businesses and ensure equal treatment for private enterprises. Luo emphasized the commitment to removing discriminatory policies based on ownership, which could help alleviate some of the pressures facing the private sector.
The importance of the private sector
China’s private economy is crucial to the country’s overall economic health, contributing more than half of its tax revenues and over 60% of its gross domestic product. Additionally, private enterprises employ more than 80% of urban workers, with many being small and medium-sized enterprises (SMEs) that are particularly vulnerable to both domestic and international challenges.
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While the government has solicited feedback on a new draft law aimed at reviving the private economy, analysts remain skeptical about its effectiveness. Alicia Garcia-Herrero, an economist at Natixis, pointed out that the proposed legislation appears to focus mainly on private tech firms, leaving other critical sectors, such as services, with less support.
As of Monday, China’s Ministry of Justice had received over 1,000 suggestions regarding the draft law, which is open for public comment until November 8. Analysts have cautioned that businesses have been burned before by unfulfilled promises, yet they acknowledge that the new legislation seems more likely to materialize compared to previous efforts.
As China navigates its economic challenges, the significant job cuts among top private firms underscore the complexities of balancing growth and employment in a transitioning economy. The government’s potential support through new legislation and a commitment to reform could provide a much-needed lifeline for the private sector, fostering a more conducive environment for growth and innovation. With rising trade barriers and tariffs, the urgency to bolster private sector activity has never been more pronounced, and businesses will be keenly observing how the government responds in the coming months.
