By Zhu Tian

China’s headline unemployment rate has remained broadly stable in recent years. Other indicators, however, point to growing pressure in the labour market. 

Here, CEIBS Vice President, Co-Dean, and Santander Chair in Economics Zhu Tian examines the limitations of conventional employment statistics, the rise of flexible employment, and the role of weak aggregate demand in shaping China’s current employment challenges. 

Data released by the National Bureau of Statistics recently showed that China’s average surveyed urban unemployment rate stood at 5.2% in the first seven months of this year, unchanged from a year earlier. Apart from 2022, when the rate rose to 5.6% amid the pandemic, it has remained broadly within the 5.1%–5.2% range since 2021. 

Youth unemployment, while much higher, has also remained relatively stable. Under the revised methodology introduced at the end of 2023, which excludes students, the surveyed unemployment rate for people aged 16 to 24 has generally hovered around 16%–17%. Judged by these two indicators, China’s employment situation appears to have changed little in recent years.

Yet that picture does not square with how people are experiencing the labour market in practice. The People’s Bank of China’s Urban Depositor Survey shows that its Employment Sentiment Index fell from 43.9 in the first quarter of 2021 to 35.1 in the first quarter of 2024, before declining further to 29.2 in the fourth quarter of 2025. This is not simply a matter of perception.

Companies are becoming increasingly cautious about hiring, university graduates are finding it harder to secure jobs, and many people who once had stable employment are now turning to ride-hailing, food delivery, and other forms of flexible work.

The apparent stability of the surveyed urban unemployment rate may partly reflect the way the indicator is defined and the population covered by the survey. It follows, therefore, that it may not capture the full extent of pressures in the labour market. 

This kind of mismatch between government figures and perceptions on-the-ground is more than a communication issue. It could have real consequences. Relying too heavily on changes in the headline unemployment rate could lead policymakers to underestimate both the severity of weak aggregate demand and the scale of macroeconomic policy support needed to address it.

Even more importantly, the official unemployment rate tells us only whether someone has a job, not what kind of job they have. As more people who are unable to secure positions in companies or public-sector institutions turn to flexible employment, labour-market pressure may no longer show up as a higher unemployment rate. Instead, it may take the form of less stable work, longer hours, and lower earnings per hour.

This may be one of the key ways to understand China’s employment challenge today.

Unemployment has barely risen, but the number of people receiving unemployment benefits has more than doubled

Data from the Ministry of Human Resources and Social Security point to a striking trend. Between 2015 and 2019, the number of people receiving unemployment insurance benefits at year-end remained virtually unchanged at around 2.2–2.3 million. The figure rose to 2.7 million in 2020 following the outbreak of the pandemic, before falling back to 2.59 million in 2021.

From 2022 onwards, however, there has been a pronounced and continued increase: 2.97 million recipients in 2022, 3.52 million in 2023, 4.63 million in 2024, and 5.57 million in 2025.

In other words, the number of people receiving unemployment benefits at year-end increased by 115% from 2021 to 2025. Over the same period, the number of people covered by unemployment insurance rose from 230 million to 249 million—an increase of just 8.5%. The more-than-doubling of benefit recipients over four years therefore cannot simply be explained by broader insurance coverage. It also makes the China’s apparently stable official employment rate event more puzzling. 

One possible explanation is that the rise in unemployment benefit recipients simply reflects easier access to benefits. In 2019 and 2020, the Ministry of Human Resources and Social Security introduced a series of measures to streamline the application process and make unemployment benefits easier and more secure to claim. 

By lowering practical barriers and reducing concerns around applying, these changes may have increased the share of eligible workers who actually received benefits. This was likely one factor behind the noticeable increase in recipients in 2020.

But it is much harder to use this explanation to account for the sustained rise after 2022. The economy performed relatively well in 2021, with unemployment pressures easing and the number of benefit recipients falling accordingly. This suggests that the indicator does respond to economic conditions and has not risen as a result of easier access alone.

More importantly, the impact of a one-off administrative reform would normally be strongest at first and then gradually fade, as the pool of eligible people who had previously failed to claim benefits was progressively absorbed. Yet the data show the opposite pattern: the number of recipients rose at an accelerating pace for four consecutive years. A factor whose impact diminishes over time is unlikely to produce a trend that strengthens year after year.

Easier access to benefits may therefore have played some role, but it is unlikely to be the main reason the number of recipients more than doubled over four years.

Of course, a doubling in the number of people receiving unemployment benefits does not mean that the actual unemployment rate has also doubled. The two indicators are based on different definitions and cannot be said to correspond directly. Nevertheless, when the unemployment rate remains almost unchanged for several years even as another indicator which is closely tied to unemployment rises rapidly for four consecutive years, it suggests that important changes are taking place in the labour market that the headline unemployment rate may not fully capture.

For this reason, it is difficult to conclude from a surveyed unemployment rate of around 5% alone that China’s employment situation has remained broadly stable.

People receiving unemployment benefits still account for only a small share of China’s unemployed population. In 2025, there were around 475 million urban workers in China, but only 249 million were covered by unemployment insurance. In other words, nearly half of the urban workforce—including many people in flexible employment, the self-employed, and others working outside conventional employer-based arrangements—were not covered by the system.

Even among those who are insured, losing a job does not automatically make someone eligible for benefits. Claimants generally need to have contributed to the unemployment insurance scheme for a minimum period and to have lost their job involuntarily. As a result, recent graduates who have yet to find their first job are not eligible, while people who resign voluntarily are generally excluded as well.

The number of people receiving unemployment benefits there captures only one dimension of the pressure in the labour market. Suppose someone loses a formal job and, unable to find a suitable replacement, turns instead to ride-hailing or food delivery. Statistically, that person is once again counted as employed. Yet this change may represent a substantial deterioration in job quality for the individual—one that neither raises the surveyed unemployment rate nor shows up in the number of unemployment benefit recipients.

In other words, people who lose formal employment in China can broadly take one of two paths. Some remain out of work for a period, and may, if they meet the eligibility requirements, receive unemployment benefits. Others do not remain unemployed, but move into flexible work such as ride-hailing or food delivery, and thus are not counted in official unemployment figures while remaining ineligible for benefits.

This second path therefore contributes to keeping the unemployment rate stable while also removing people from the pool of unemployment benefit recipients. Against a backdrop in which flexible employment is absorbing a significant share of displaced workers, the fact that the number of people receiving unemployment benefits has still doubled deserves even closer attention.

Flexible employment has become a vast reservoir for absorbing labour-market pressure

In 2020, the Ministry of Human Resources and Social Security estimated that around 200 million people in China were in flexible employment. That figure has continued to be widely cited in the years since. In reality, however, the number of people in flexible employment has very likely risen substantially over this period.

According to a recent report from the China Research Center for New Forms of Employment at Capital University of Economics and Business, the number of people in flexible employment in China rose from 200 million in 2021 to 280 million in 2025, and is projected to reach 320 million in 2026. These are not official statistics, and the estimates may not be precise. Even so, the broader trend—a rapid expansion of flexible employment in recent years—appears clear.

Flexible employment is not inherently a bad thing. Freelancers, the self-employed, and many people who actively choose more flexible ways of working all fall into this category. The more important question is why so many people have moved into flexible employment in recent years.

For a significant share of them, the move may not reflect a preference for flexibility at all. Instead, they may have turned to ride-hailing, food delivery, or other relatively accessible forms of work because they were unable to find stable jobs with conventional employers. Once they take up such work, however, they are counted as employed in the statistics.

Consider someone who previously earned RMB 20,000 a month at a property company. After the company goes under, they loses their job. Unable to find a suitable position for several months, they start driving for a ride-hailing platform, earning RMB 6,000–7,000 a month while working more than ten hours a day. In labour-market statistics, this person has moved from employment to unemployment and then back into employment. The unemployment problem has, in a sense, been “resolved”.

From the individual’s own perspective, however, the reality is very different. They have moved from a relatively stable, well-paid job with comprehensive social security coverage to one that represents far lower income, longer working hours, and much weaker social protection.

So, while the unemployment statistics themselves are not necessarily wrong, the problem is that they do not capture the full picture of what is happening in the labour market.

This example points to an important difference between flexible employment and conventional jobs in firms. When the economy weakens, a company may respond by laying off 10% of its workforce, while the remaining employees continue to receive their salaries. In this case, labour-market adjustment shows up largely as a rise in unemployment.

Platforms such as ride-hailing and food delivery work differently. They do not need to lay people off. In fact, an economic downturn may bring even more workers onto these platforms. The result is that each worker receives fewer orders, spends more time waiting between orders, works longer hours, and earns less per hour.

Statistically, these workers are not unemployed. But many may be experiencing some form of underemployment. A ride-hailing driver, for example, may stay logged on for more than ten hours a day while spending a significant amount of that time waiting for fares, meaning that his labour is not being fully utilised. Similarly, a former property-sector manager who loses his professional job and turns to ride-hailing may be employed again, but with a substantial skills mismatch.

The larger the flexible employment sector becomes, therefore, the less likely it is that labour-market stress following a demand shock will show up simply as a higher unemployment rate. Instead, flexible employment can act as a vast buffer, absorbing displaced workers while spreading the adjustment through lower earnings, longer hours and underemployment.

This may be precisely what is happening in China’s labour market today.

Employment pressures are just one reflection of China’s economic slowdown since 2022

How unemployment and employment are measured is more than a technical issue. It shapes how we assess the labour market—and, in turn, the direction and scale of macroeconomic policy. If a surveyed unemployment rate of around 5% is taken as evidence that employment conditions remain broadly stable, there is a risk of underestimating the severity of weak aggregate demand and treating what is fundamentally a macroeconomic problem as a structural issue within the labour market itself.

In fact, rising employment pressure is not an isolated phenomenon. It is one of the clearest manifestations of the broader weakness in aggregate demand that has affected China’s economy since 2022.

2022 marks a fairly distinct turning point in China’s recent economic trajectory. The previous year, 2021, had been a high point for the economy. GDP grew rapidly, property prices, stock prices and the renminbi all strengthened, and consumer confidence rose to a record high.

As discussed above, both the number of unemployment benefit recipients and the growth of flexible employment point to a marked shift in the labour market around 2022.

The property sector, however, began a sharp correction in the second half of 2021. Since 2022, property investment, sales and new construction starts have all continued to decline substantially.

Price indicators tell a similar story. China’s Producer Price Index (PPI) began falling in the second half of 2022, with factory-gate prices declining year on year for 41 consecutive months. The index returned to growth in March 2026, but this was driven largely by higher global commodity prices, external cost pressures and improved conditions in a small number of industries, rather than a recovery in domestic demand.

At the same time, China’s overall price level fell for three consecutive years from 2023 to 2025, as reflected in three straight years of negative GDP deflator growth. World Bank cross-country data going back to 1960 suggest that it is highly unusual for a large economy to experience a negative GDP deflator for several consecutive years. Japan’s 16-year stretch of negative readings from 1998 to 2013 stands out as the most prominent—and longest-lasting—example.

In addition, profits at large industrial enterprises fell for three consecutive years from 2022, the first such decline since comparable data became available. In 2025, profits grew by just 0.6% from an already low base. Although industrial profits recovered noticeably in the first half of this year, the gains were heavily concentrated in a handful of sectors, including electronics, semiconductors and non-ferrous metals. This does not necessarily indicate a broad-based recovery in industrial demand.

China’s recent economic slowdown is often attributed to so-called “structural problems”, such as an ageing population, the relatively low share of consumption in GDP, and the transition from old to new industries. But if these long-term structural factors were the main drivers of the downturn over the past few years, it would be difficult to explain why a range of indicators—including employment, prices and corporate profits—experienced such a clear and simultaneous break around 2022.

A simpler explanation lies in the sharp property downturn that followed efforts to deflate the sector’s accumulated imbalances. Real estate investment had long been an important component of China’s aggregate demand. Its steep decline therefore did more than reduce investment directly. It also affected construction, building materials, home appliances, furniture, financial services and a range of related industries, while weakening local-government land revenues and household wealth, with further knock-on effects on consumption and investment.

The shock from the property downturn therefore spread rapidly across the wider economy, creating a substantial shortfall in aggregate demand.

To improve employment, the priority is a major boost to aggregate demand

If today’s employment pressures are mainly the result of weak aggregate demand following the sharp downturn in the property sector, then the broad direction of policy is relatively straightforward. The basic logic of macroeconomic stabilisation is that when households, businesses and even local governments are not spending or investing enough, the central government needs to step in with expansionary fiscal and monetary policy to help close the demand gap.

China’s monetary policy should therefore be more accommodative. The country is still facing deflationary pressure, leaving room for further interest-rate cuts. But when households and businesses are reluctant to spend, lower interest rates alone may not generate enough additional demand. Under current conditions, fiscal policy may therefore have a more important role to play than monetary policy.

The key is for the central government to significantly increase both spending and debt. In recent years, the property downturn has sharply reduced local governments’ land-sale revenues while adding to their debt pressures. Many local governments have, in effect, been cutting back on spending. If households, businesses and local governments are all trying to spend less and contain debt at the same time, while the central government also places too much emphasis on fiscal balancing, the economy’s aggregate-demand shortfall will be difficult to close.

Additional central-government spending could be directed towards several priorities. The first priority is direct support for household consumption. One option would be for the central government to issue special government bonds and distribute substantial, time-limited consumption vouchers to households. The objective would not be to permanently raise the share of consumption in GDP, but to increase total spending directly at a time of insufficient demand. Small-scale measures would have little macroeconomic impact. If the aim is to meaningfully support aggregate demand, the programme would need to be measured in the trillions of renminbi.

The second priority is to prevent a further sharp contraction in the property sector. The aim should not be to instigate another property boom, but to complete unfinished housing projects as quickly as possible, resolve troubled developments, absorb excess housing inventory and stop real estate from remaining a major drag on aggregate demand. Projects that can be completed should receive sufficient funding to ensure delivery. Completed homes that cannot be sold in the near term but are able to meet public needs could be acquired by the government or policy institutions and converted into affordable or rental housing.

Third, the central government should increase fiscal transfers to local governments while refinancing part of their high-cost debt with lower-cost central government bonds. This would reduce the interest burden on local finances and help prevent local governments from cutting essential public spending further in their efforts to bring debt under control.

China has ample productive capacity and a high level of bank savings. What is lacking is a sector that is both willing and able to increase spending under current conditions. Households are reluctant to take on more debt, businesses have little appetite for new investment, and local governments are constrained by their debt burdens. As such, the central government needs to take on more debt and increase spending.

Long-term structural reforms are, of course, also necessary. These include improving the business environment, restoring confidence among private-sector firms, reforming the fiscal and tax system, strengthening social security, and upgrading workforce skills. But none of these can substitute for short-term macroeconomic support. The most pressing problem today is insufficient aggregate demand, and the immediate priority should be to close that demand gap through macroeconomic policy.

Ultimately, employment depends on companies’ demand for labour. Businesses hire and invest when they have orders, revenues and profits. If aggregate demand across the economy does not genuinely recover, measures such as vocational training, employment services or encouraging flexible work are unlikely to solve the employment problem at its root. Flexible employment can serve as a buffer during an economic downturn, but it cannot be a substitute for macroeconomic policies that address the underlying weakness in labour demand.

In short, the most important step towards improving China’s employment situation is to restore aggregate demand as quickly as possible. Fiscal policy should take the lead, supported by monetary policy. Only when consumption and investment recover, and businesses regain the confidence to invest and hire, will pressure in the labour market ease in a meaningful and lasting way.

If a surveyed unemployment rate of around 5% is taken to mean that China does not face a serious employment problem, there is a real risk of underestimating the pressures facing the labour market today.

Zhu Tian is Vice President, Co-Dean, and Santander Chair in Economics at CEIBS. He is an expert on the Chinese economy and the author of Catching Up to America: Culture, Institutions, and the Rise of China (Cambridge University Press, 2021).