China’s gig economy losing ability to absorb laid-off factory workers

With the Chinese economy slowing, concern has increased among Chinese policymakers about the outlook for employment, since ensuring a sufficient number of new jobs is seen as a necessary ingredient in maintaining social stability in the country. The Politburo set employment as the top priority last July, when it shifted its economic policy focus to stabilizing growth. That led the government to enact a series of policies to counter rising joblessness. 

The cold draft of job cuts returned to China this winter, only three years after the last round, but this time, the safety net for Chinese workers is much thinner.

Chinese internet-based service companies, which served as the employment backstop in the last economic downturn, have themselves fallen on hard times, only adding fuel to rising layoff worries.

Online search traffic for the keyword “layoff” has shot up since December to a level higher than at any time since the beginning of 2011, when such data first became available, according to Baidu Index, a Chinese online search tracking service equivalent to Google Trends.

Companies that were repeatedly highlighted in these searches were not just major exporters or manufacturers, but also internet platforms for ride-hailing, livestreaming, and food delivery – the heart of the “life services” or “gig” economy.

Over the past few years, the sector has created a vast number of new entry-level, low-skilled jobs, thereby absorbing the millions of workers who have been laid off by heavy industries like steel and mining since 2016, when Beijing launched an economic restructuring campaign to cut excess industrial capacity.

Li Xunlei, chief economist at Zhongtai Securities, recently estimated that from 2015 to 2017, as many as 33.37 million workers who left first- and second-tier industrial firms could have begun work in the gig economy. This sector is also known as the “gray economy” because employment in this market is not covered by government statistics.

The flexible scheduling available in many gig economy jobs has also attracted many other Chinese workers who want to earn extra money by working part-time.

But in the face of the ongoing economic slowdown, rapidly saturating markets for their services, and stricter regulation by authorities, Chinese gig-economy firms have fallen on harder times.

This has sharply limited their ability to absorb layoffs from other economic sectors and darkened the outlook for the Chinese employment market, even though the creation of a sufficient number of new jobs is the top priority for economic decision-makers in Beijing this year.

“This safety valve for the job market is not working as well as it used to, as many small businesses and the gig economy are facing an increase in regulatory constraints,” Ernan Cui, an analyst from search firm Gavekal said.

The national Ministry of Transport in September started to squeeze all “unqualified” ride-hailing drivers, an example of tighter regulation becoming a major constraint on the sector.

Photo credit: Didi Chuxing

Later in November, Didi Chuxing, China’s largest ride-hailing service operator, said that it would push drivers to obtain both licenses for themselves and permits for the cars they use.