Investors looking to broaden their geographic scope often look to China as a source of growth and financial opportunity for the future. As a result, some amateur investors look at headline measures such as unemployment and GDP growth as a bellwether for the health of the overall economy. A quick look at the official Chinese unemployment measure is promising – as seen below, the metric has hovered in a band from 3.9% to 4.3% for the past 10 years.
A nation of just under 1.4 billion, with an unemployment rate of just over 4%? That kind of utilization of a nation’s citizens is incredibly impressive and reason enough to put your money towards China’s future growth prospects. However, China’s unemployment rate is virtually useless to interpret. As Bloomberg points out, the headline rate only accounts for the number of urban workers who register for unemployment benefits with their local governments. This fails to account for 270+ million migrant workers in China’s population, and the 600+ million rural workers. As a result, the unemployment rate offered up by the Chinese government is essentially meaningless to use as a barometer for the health of the entire economy given that it fails to change during economic cycles. Fortune also points out that the true unemployment rate for the country may have been as much as three times higher during June 2016, which is a swing of around 110 million people, or approximately 1/3 of the U.S. population. In a communist country where the strength of the government is dependent on social stability, it’s not terribly surprising to see the government offering up suspicious economic data. At most you could use this data to look at a small change in citizens requesting unemployment benefits, but the change from 4% to 4.3% during the Financial Crisis is paltry compared to the spike in U.S. unemployment from 4.4% to 10%. For investors and others on the outside looking in, they should be wary of putting their money towards an economy that seems to be a black box of information.