China’s top private companies slashed over 300,000 jobs last year, despite modest growth in financial performance, according to a report by the country’s largest business association. The data, released by the All-China Federation of Industry and Commerce, revealed that 500 leading private enterprises employed 10.66 million people in 2023 — a decline of 314,600 jobs compared to the previous year.
This significant workforce reduction has raised concerns over the private sector’s vulnerability to China’s slowing domestic economy. Analysts have highlighted the need for increased government support, especially in the wake of a new draft law aimed at reviving the private economy, unveiled by Beijing on Thursday.
“The fact employment fell despite revenues rising highlights the uncertainty facing firms,” Harry Murphy Cruise, an economist at Moody’s Analytics was quoted as saying by The South China Morning Post.
He indicated factors such as increased automation and efficiency drives, particularly in competitive markets like manufacturing, may also be contributing to the job cuts.
Manufacturing, a traditionally labour-intensive sector, remains dominant among China’s private firms, with 66.4 per cent — or 332 — of the top 500 firms operating in this space, up from 322 in the previous year. The shift toward automation and intelligent production is part of China’s broader strategy to modernise its economy in response to global competition and labour shortages.
More than 60 per cent of these firms have digitised their operations, according to the federation’s report. Despite this technological progress, the economic slowdown has taken a toll on employment. Net profits for the top 500 private firms rose by nearly 3 per cent to 1.69 trillion yuan ($239 billion), but the job cuts marked the largest decline in the private sector workforce since 2011.
Major sectors such as real estate, internet services, automotive, and finance have all experienced broad layoffs over the past year. “Investment in sectors outside of manufacturing is crawling and firms are scaling back hiring. That is unlikely to change soon,” Cruise said, citing September’s purchasing managers’ index data, which showed non-manufacturing hiring intentions at their lowest since December 2022.
Policy uncertainty and restrictive regulations have added further obstacles for private firms, Cruise noted. However, Luo Wen, head of the State Administration for Market Regulation, pledged on Monday to reduce institutional costs for businesses and ensure equal treatment for private enterprises. Luo emphasised the government’s commitment to removing discriminatory policies based on ownership.
China’s private economy plays a crucial role, contributing more than half of the country’s tax revenues, over 60 per cent of its gross domestic product, and employing more than 80 per cent of urban workers. Many of these businesses are small and medium-sized enterprises that remain vulnerable to both domestic and external pressures.
Although Beijing has solicited feedback on the new draft law aimed at promoting the private economy, analysts are cautious about its potential impact. “The proposed legislation seems to focus on private tech firms, leaving other sectors, such as services, less supported,” said Alicia Garcia-Herrero, an economist at corporate and investment bank Natixis.
As of Monday, China’s Ministry of Justice had received more than 1,000 suggestions for the draft law, which remains open for public comment until November 8. “Firms have been burnt before by promises that fail to materialise,” Cruise stated. However, he acknowledged that the new legislation seems more likely to become a reality compared to previous attempts. “And in the face of rising tariffs and trade barriers, the impetus to promote private sector activity at home is higher than it has been for some time,” he said.
First Published: Oct 15 2024 | 11:56 AM IST
