The situation in China is not what so many commentators suggest. It is not the new shining city on the hill, although it does remain a manufacturing powerhouse, at least for now. Many western politicians wax lyrical about following China’s example, obviously without understanding what that means. China is a land of glitzy urban façades, but it has not lifted millions of its people out of poverty. Poverty and homelessness are endemic in a country with no social safety net. It has hit a demographic wall, where the population – already considerably overstated due to attempts to hide the impact of the long one child policy – is shrinking at an accelerating rate. The society is rapidly aging and youth unployment is skyrocketing, but each young person is responsible for four grandparents due to the lack of a retirement system. The middle class is being hollowed out in a spiral of downward mobility. This is a system destined to break, and it’s already breaking its people.
The ‘flexible worker’ sector of the economy is growing rapidly – from 280 million people in 2025 to a projected 320million in 2026. That’s half the workforce with no stablity, and there’s an increasing number of highly educated people with no choice but to enter the gig economy. Some sectors of that are already saturated, meaning it’s becoming more and more difficult for each individual to earn a survivable income. At least half of the flexible workers are significantly under-employed. The wage gap between blue and white collar workers is shrinking, but not because blue collar workers are doing better. White collar workers are being forced out of stable employment as the economy enters a crunch. The turning point was 2019, with the forced shutdown of much of the economy. Employers became very risk averse around hiring, and many smaller businesses died, at the same time as ever more graduates were turned out to compete for fewer stable jobs. More and more people are being forced into an extremely precarious position. Even people with jobs are not necessarily being paid, and may be forced to live on savings for months. Complaining to employers achieves nothing, so there’s an epidemic of disgruntled workers burning down their places of employment.
In formal employment, people tend to become more valuable over time, as they gain skills and experience, and build networks. In contrast, in the flexible economy there is no career progression, no adding of skills or experience, and no ability to save. Career capital is destroyed, and no cushion can be created for old age. Such employment is essentially the draining of a human battery. The significant costs of working this way mean that the actual net income is barely enough to survive, and people must work all hours. There is no such thing as work life balance, and no time or resources for raising a family. This is exaccerbating China’s steep demographic decline.
The longer a person works in the informal economy, the harder it is to transition to, or back to, formal employment. China is following in Japan’s footsteps in this regard, although under much less advantageous circumstances. After the crash of its bubble in 1989 and subsequent economic stagnation, Japan a large chunk of Japan’s workforce entered an employment ‘ice age’ from 1993-2004. Career progression either never properly began or stalled out for many, and most have never recovered earning power, despite attempts by the government to assist them. In Japan’s case this cohort was comprised of about 18 million people. In China the same dynamic is setting up, as its bubble has also burst, and it’s looking at about a hundred times as many people affected.
Japan had significant advantages over China’s current position. It was already rich before it hit the wall. It had stable institutions, strong corporations, savings, and a social safety net. China hit the wall before becoming rich. Even by official figures, the average earnings per year are only about $18,000, and the cost of living is rising. The property sector, in which the majority of citizens placed multigenerational savings, was structured as a ponzi scheme and is collapsing. Local governments, which had been financing themselves through development fees, are now deep in bad debt in in comsiderable trouble. Many people, notably the flexible workers, earn very much less than the average wage, and there is no safety net. Savings are depleted as workers are not paid. Neither coporations nor government are at all responsive to the needs of the population. There are also no services to assist people broken by the system, so these people are increasingly engaging in revenge against society attacks. The most common forms of this are knife attacks on young children or vehicular manslaughter. Such events occur regularly. Unlike Japan, China is a very low trust society, where people have been trained to look after number one and cheat wherever possible to gain personal advantage. This is not a recipe for social cohesion, especially during a period of economic stagnation which will shortly morph into outright contraction. Conversely, it’s a recipe for a social explosion.
Those unable to find work in the city cannot simply return to the countryside and become subsistence farmers. The agricultural system has been industrialised, and they lack the necessary skills. There’s essentially no other employment in rural areas. As China climbed the ladder of progress, it effectively kicked out each lower rung as it ascended, so there’s no way back down that doesn’t involve societal upheaval. The government refuses to loosen its bureaucratic and highly authoritarian control over people through reform, for fear of weakening the state to the point of potential failure, as arguably happened to the Soviet Union. The system remains rigid and therefore brittle. This will not end well.
