China’s gig economy | Econ World

Can we talk about your side hustle? Don't worry, I'm not interested in whether you're paying the right amount of tax. Although, to be clear, this is a law-abiding podcast and you should pay what you owe. It's more, I want to get you thinking about the gig economy. You see, this week's show is all about the world's largest gig economy, China. Why it's both a blessing and a curse for the 300 million people working in it. Enabling them to make money at a time when construction and manufacturing jobs are being lost and record numbers of graduates are entering the workforce, but also offering precious little financial security, making it difficult for gig workers to spend or save the way Beijing needs them to. Their experience has lessons for all of us, whether you're a freelance consultant in Delhi or a content creator in LA, because the gig economy is growing fast all over the world, with algorithms increasingly doing the firing. So stay tuned. I'm Carmel Crimmins, and this is Reuters' Econ World. Every week, we go deep on the economic principles and ideas driving the biggest news around the world on this week's show, China's gig economy. So to talk us through all things China and the gig economy, I'm joined by our lead writer for China, Marius Zauria. Marius, how are you? I'm very well, thank you. Happy to be here. Now, Marius, being people who cover economics, definitions are important. So what do we mean when we say China's gig economy? Like what type of work are we talking about? Because the definition of this kind of sector can be quite broad, right? Yeah. So I think I'll go with the official definition in China. That means flexible employment. So everyone who's not on a full-time permanent traditional job contract. So this can take many forms. Many people working in manufacturing don't really have full-time contracts. People who work in the construction industry don't have full-time contracts. You've got like everywhere else, you've got people who are self-employed or freelancers, but you also have obviously the platform economy, just like in any other country. I mean, the scale of the size of the gig economy in China, it's unparalleled really, isn't it? It's projected to hit, I think it's 320 million this year, nearly half of the Chinese workforce. The estimate is very recent. We've been looking for estimates of size for a while, but I think last month we had the report by think tank China New Employment Forms Research Center. It's one of the think tanks in China and they estimated that 320 million people, like you said, and that's 40 million more than the year before and 40 million more than the year before that. I think the furthest back their estimates go is 2019 when it was half the numbers that we have today. And yes, it's almost the size of the entire US population if you think about it. It's, I think, 44% of total employment in China. If you only take urban employment and many of these jobs would be in the cities, that percentage gets closer to 70%. So it's huge. Wow. And the difference there is that you mentioned, like say, for instance, in the US, the gig economy is very much concentrated on the services sector. But as you talked about there, in China, it's across many different sectors. It also includes factory work, manufacturing. How did we get here? How did it get so big? Because when you traditionally think about China, and I'm going back a bit, under Mao, say for instance, it was a planned economy. There was that concept of the iron rice bowl. So you took a job in a factory and it was a job for life. And in return for working there for years and years, you were kind of guaranteed social protections. And now we have, it feels like we've done a 180 and nearly half the workforce is gigging. So how did we get to this point? Well, I mean, since you mentioned Mao, during his time, the economy was a state economy, almost 100% state economy, right? So if you worked anywhere, you were working for an SOE or some other kind of state institution. Everything was owned by the state, no private enterprise. Yeah. And then Deng Xiaoping comes on and he liberalizes the economy, and both in urban areas and in rural areas, agricultural productivity increases. People no longer have to stay on the farm. They move to the cities and they find work wherever they can find work. And that sort of transformation, it was made at a very rapid pace. And I think everywhere where you have these big transformations, this is not just a Chinese issue. Regulations don't necessarily keep up with the change in the economy. So you end up with a huge influx of rural population going into the cities and they work in factories, they work on construction sites. This has been part of the story of the very impressive Chinese development that we've seen over the past couple of decades, right? The migrant workers are those who build the skyscrapers, who build those incredible highways, the railroads and so on. And they're the ones who man the factory floors of the biggest industrial complex in the world. But not all of them work on formal, full-time, permanent contracts, right? So some of them have been in this state of flux and have had this job insecurity ever since the beginning of what we call now modern China. And is there a typical gig worker? I mean, does it tend to be people from rural areas, or does it kind of cover a multitude? Because that was the traditional view that it was sort of migrant workers coming into urban areas, picking up gigs as they got them. I guess your typical blue collar worker is a male from the countryside in China. If we're talking about daily drivers or delivery riders, yes, they are, indeed, most of them male. We see more and more female drivers and riders on the road. But increasingly what we're seeing now is that they're younger. Their better educated youth unemployment is very high in China. It's one in five or one in six people between the ages of 16 and 24 who are currently unemployed. And the job market is very tight. It's very competitive for them. It's very difficult to find any sort of formal type of employment. So they fall onto the gig economy, which is increasingly becoming the social safety net in China. And also, increasingly, you see white collar workers falling into the gig economy. We spoke to some people like that as well. One person, for instance, he is 30. He's got a computer science degree. He worked as a software tester until late last year when he lost his job. In January, he started driving for a ride-hailing app. In the meantime, at night, he was trying to look for other jobs in the tech industry, couldn't find any. And now he's talking to us in the middle of the summer and he's saying he's not looking for tech jobs anymore because he knows this summer there's a record number of university graduates in China, 12.7 million people about to join the workforce. And he's finding it very hard to compete. And also, a lot of software testing can be done by AI now. So companies in China in particular, they're adopting AI at a faster pace than perhaps anywhere else. And even though it's not legal to fire a worker in China if their job is being replaced by AI, this certainly slows down hiring, right? Tell us, Marius, about the hukou residency system in China. It particularly lends itself to a gig economy model. Yeah, it's a very unique system. The hukou is basically a residency permit. So you can have rural hukou or an urban hukou. But this basically divides society according to the place of birth. And in China, your benefits are tied to your place of birth. Your access to public services is tied to the place of birth. So for instance, if you have a rural hukou and you work in the city, you may well contribute to social insurance schemes in the city, but you can't really access them unless you contribute there for a while. And many people change cities every time they change jobs. So they naturally fear they're never going to have access to this type of contributions, right? And then all they have is what they're entitled to when they go back to the countryside. In many cases, this would be access to the universal basic pension income of 148, I think it's 148 or 168 yuan per month. So 20-25 bucks. It's very hard to live on that kind of income. You supplement that with farming. But as you grow older, then you kind of rely on your children, friends and family to support you. So it's very hard. The hukou actually dates back to the Mao era. Well, some historians say it dates back even further than that. But during Mao's regime, they used hukou to deliver food rations during the Great Famine. As it were, authorities were concerned that you would have literally starving people in the countryside flocking to the cities for food, especially coastal, more affluent cities like Shanghai and so on. Now we're not talking about dramatic things like that, but it is still something that weighs on consumption generally in China, because these people don't feel like they're being adequately protected by the welfare system. So they tend to save more as a percentage of their income than your average urban employee. And this ties down a lot of money in savings that doesn't go into consumption. Right. I mean, if you can't sort of live where you work permanently, you're not going to buy an apartment there. You're not going to go and buy furniture. You're not going to settle down, have a family there. So it definitely is a barrier to putting down roots. So it kind of lends itself to the gig economy, but then raises the downsides of that economy. All right, quiz time. So in economics, human capital is a fuzzier, warmer concept than it sounds. It's a way for economists to talk about what makes you productive at work, your education, your skills, your experience, even your sunny personality. But recently, a company CEO caused a storm when he said his company would replace, quote, lower value human capital with technology. So which CEO was it? Was it A, Elon Musk, the CEO of SpaceX? B, Bill Winters, the CEO of Standard Chartered Bank? Or C, Mark Zuckerberg, the CEO of Meta? I'll have the answer for you at the end of the show. Stay tuned. For the next part of this show, we dig deeper into the downsides of the gig economy. Marius, from your team's reporting, I mean, do people like the flexibility and the independence that the gig economy offers? Because there are benefits to this. Yeah, I mean, some people do see benefits. It does depend on a lot of nuances and circumstances and personal context but we've spoken to people who worked in the construction industry for many, many years and now they're grateful they don't have to carry heavy loads, you know, exposed to the weather outside and they're driving the car and they're happier with that. And even people who used to have white-collar jobs, many of them say they got sick and tired of the infamous 9-9-6 work culture in China where you work from 9am to 9pm six days a week. They got tired of workplace politics. They got tired of their bosses. They can be their own boss, right? No one forces you to make a delivery or take a ride if you don't want to do that. But that said, most people who do delivery work, who do ride hailing, we've spoken to work very, very long hours and more hours than your typical 9-9-6 worker, actually, because every hour gets them an income, right? And that's the downside, right? It can be precarious work, it can be low paid and it doesn't offer the same protections that a contracted job offers. That's the downside. The biggest concern that economists have is that social insurance contributions for people in flexible employment in China are voluntary. Right. Does that mean no one pays? The majority of people choose not to pay because they can't look too far into the future. Many of them tell us that they prefer to have control over their savings. If something happens, they have immediate access to their own savings instead of contributing to a state scheme where you can only access, for instance, your pension after you retire. So, from their perspective, it just gives them a bit more control. I think from 320 million people who are in flexible employment, I don't think we have the numbers for this year, but last year, according to some articles in state media citing government reports, only about 70 million of people in flexible employment contributed to the urban pension scheme, which is a scheme that tops up the basic universal pension, which, like I said, is negligible. So that's a big fiscal headache for Beijing. It's a big fiscal headache for Beijing. They had problems with their welfare system, irrespective of this new headache that they're facing. There was a report by the China Academy of Sciences in 2019, I think it was, when they said the pension system, as it were, would run out of money by 2035. Now, they updated that estimate more recently, and they said it has an extra eight or nine years as the retirement age goes up, but it's still at risk of being in deficit and running out of money. So that's a huge problem. I think if you look at any country in the world, you have similar issues with gig work, right? Many people who, even the freelancers and the self-employed, choose not to contribute to certain schemes, right? But in China, this is a problem because the welfare system was so thin to begin with. Marius, for delivery drivers now in China, compared to, say, their grandparents who might've worked in the same factory year in, year out, who's better off? In terms of their hourly earnings, are they better off than previous generations? What's their loss? I think if you compare incomes with a generation ago, they're probably better off. But I think what's changed is that for this new generation, the people in their 20s and 30s now, they don't have the same optimism about the future that their parents had. Their parents had very low expectations. Their own parents had gone through the famine during the Mao era. The transformation in China after Mao was huge, and they definitely benefited from that. But I think the feeling was that it was only going to get better and better and better. This is not the impression that people in their 20s and 30s have at the moment. The other issue, of course, is youth unemployment is a real problem in China. So, you've got more and more people seeking out these gig economy jobs, and it's creating pressure within that market, right? It is creating pressure. We've spotted four cities issuing warnings about market saturation in the ride-hailing industry since April. One of them is Shenzhen. It's a huge city of almost 20 million people right across from Hong Kong. So, it is creating a bit of a problem in certain cities that can't handle such a big influx of gig workers into some of these sectors. This has put pressure on wage growth in these industries in China. For instance, a ride-hailing driver on average earns about $4 an hour. That's only 1.8% higher than last year. This might seem all right if you're based in London or somewhere else in Western Europe, but then if you think about an economy that's growing 5% a year, then that becomes a huge problem. You mentioned the average earnings for delivery drivers is about $4 an hour. How far does that get you in a big city? Is there a national minimum wage in China? How does the $4 compare? The minimum wages in some of these cities are I think in a big city it's less than 2,000 yuan per month. Now, there's not many people who work on minimum wage because it's just so low. But the problem with the minimum wage is that unemployment is calculated as a percentage of that and it's I think 70% or 80% of the minimum wage in your city. So you can't really rely on unemployment benefits. You actually have to find some sort of work and that's usually gig work, at least temporarily. At a $4 an hour rate, I'm not so sure how that translates for every single person on a monthly basis. But some of the workers who drive cars or scooters and do delivery work, they earn on a gross basis about 10,000 yuan or 12,000 yuan per month. But then almost half of that income goes on renting the actual car, paying for the insurance, charging or fueling the car. They have to eat out all the time because they're always on the road. And so that eats out a lot of their wages and they're left with less than $1,000 a month, which is not a great salary if you're in Shanghai or Beijing because rent is expensive there and your cost of living is pretty high. There's a lot of scarring, isn't there? A lot of scarring from the property downturn, right? People got burnt putting their savings into apartments that maybe didn't get built or half built. So the property crash, there's still a big legacy there, isn't there, in terms of demand? And it's still ongoing. China hasn't reached the bottom of its property downturn. Many of the construction workers in that industry now end up delivering food or driving cabs and so on. So they lost one source of income. Now they're relying on this gig work for their incomes. It's a difficult way of living. There aren't too many solutions to that. Because every reform you want to put on the table comes with massive trade-offs. If you're enjoying the show, why not check out the newsletter that accompanies it? Also called Reuters Econ World, it arrives into your inbox every Thursday, spotlighting all our best coverage of finance and economics from around the globe. We'll put a sign-up link in the notes accompanying this episode. In the final part of the show, we look at some of the changes China is introducing for gig workers. Marius, there's a big political risk, isn't there, to Xi Jinping and China's leadership from this big group of gig workers, right? I mean, we have seen in other Asian countries like a shortage of good jobs has led to kind of rise in protests against political leadership. So there is a risk, isn't there? I don't think we can measure that. Very few analysts would kind of venture in that direction. The Chinese Communist Party just celebrated its 105th anniversary of humanity. But that said, employment is a social stability issue everywhere in the world, and China is no different. In fact, in official documents, they refer to employment as the bottom line. They really do care about people having access to jobs and earning an income. So the government themselves, they see any problems with employment as risks to social stability. There aren't too many protests in China. They're very rare. It's very hard to hear about them. And we also have to talk about what's been happening over the past year or so. The population in China have noticed Beijing being able to stand up to the world's biggest superpower and bring down tariffs from more than 100% to double digits. And they've been able to grow their economy by 5%. So if you talk to people in China, there's a lot of pride in that. And it does have to do with this investment-heavy growth model that China has. But obviously, the mood on the streets in China is not exuberant. China is growing in a K-shaped fashion, where exports and industrial output does very well, but incomes are lagging massively. People are falling out of formal work into the gig economy. They feel less secure about the future. They save more, they spend less. And then because they do that, the problem compounds in time. So that's obviously an issue that the authorities in China are aware of, they're mindful of, and they'll look to address in the near future. There have been some efforts, haven't there, to introduce protections for gig workers in China? They've issued some documents calling for better protection. And I think the platform companies have improved that to some extent. Of course, if you speak to the workers, they'll tell you there's some way to go in terms of those improvements, in terms of accident insurance and medical insurance and incomes, and the penalties that they face if they are late with delivery and so on. But the fact that China is openly talking about this means there's going to be more measures and regulations down the line. Now, I think most analysts and economists and labor experts very much doubt that Beijing is going to go all the way and make social insurance contributions mandatory for both workers and their employers. These are pretty big in China, 10% on average for a worker, and 25% of the income comes from the employer. But if you enforce that, then you're sort of reducing the ability of these companies to create jobs. And at the moment, the gig economy is one of the most important job creators in the economy. And that's that trade-off that you're talking about there when you're talking about reforms, the more you regulate the sector, the less of a job creator it becomes. And it is right now the shock absorber for the Chinese labor market, isn't it? It is providing jobs for people as they graduate. Yeah, that's the trade-off. The trade-off certainly goes beyond the gig economy and applies to the Chinese economy at large, if you will, if you want. Part of what makes Chinese exports cheap and competitive is also that many people working in factories are in flexible employment and they have a weak negotiating position. If you start to regulate certain industries and try to lift incomes that way, then it's not hard to imagine that these goods that China makes also need to become more expensive. Many manufacturers in China operate on quite thin margins. Higher labor costs would add to that. It will make Chinese exports less competitive. So, you know, the fact that incomes are low in China and demand is weak is just the reverse side of their incredibly powerful industry and incredible competitive manufacturing sector. And also the other side of this is that Xi Jinping is promoting kind of, you know, what he calls new productive forces. So the industries that China is pouring investment into, you know, things like AI, quantum, like all quite futuristic industries don't necessarily require huge labor forces, right? And in fact, you know, rely perhaps more on AI automation. So China really needs this gig economy to survive and thrive and be able to absorb more workers. That's right. Chinese factories are becoming more and more automated. We've all seen footage of the dark factories, which are almost entirely, you know, robotized. What about reforming the Hukou system? Is there any sign of them doing that? Yes, they've been pushing that quite actively from Beijing, but it has to be implemented at a provincial and municipal level. And, you know, some cities that are doing better economically, they welcome more labor. They need to fill out empty homes and find the bottom for the property sector. Or they need to bring more talent to their growing manufacturing sectors. But not every city and province in China can afford that. In certain places, if you have more people coming in, that puts quite a heavy burden on public services. And these cities have debt problems that they have to deal with. Right, kind of hangover from the property bubble, right? Invested a lot in property. Indeed, indeed, they're kind of seeing problems there. And expanding, you know, medical services or education services costs a lot of money. So is China just kicking the can down the road then in terms of rebalancing its economy more towards its domestic demand, domestic population? Yeah, but I think, you know, from their perspective, they feel that they're following the right strategy because it keeps its geopolitical variables in check and that gives it more security. But also, you know, it is pursuing, you know, technological leaps in all sorts of sectors and who knows what productivity gains will come from that, whether the bets will come off or not. You know, it's an open question. But if they do, then the question really is how much of those productivity gains will be shared with labor, right? And to what extent these productivity gains really lead to higher incomes. So then China becomes less dependent on exports, which essentially means other people in other countries earning more relative to their productivity than in China and starts relying more on their local population. So where does this leave the 300 million plus gig workers? Many of the gig workers we spoke with don't want to look too far into the future. For them, today is hard enough. So many of them just want to get through the day, unfortunately. A big thank you to Marius for his time and insights. You can catch all of our coverage of China on the Reuters app and Reuters.com. Now for that quiz. I asked you which CEO caused a storm when he said his company would replace, quote, lower value human capital with technology. So which CEO was it? Was it A, Elon Musk, the CEO of SpaceX? B, Bill Winters, the CEO of Standard Chartered Bank? Or C, Mark Zuckerberg, the CEO of Meta? And the answer is B, Bill Winters, the CEO of Standard Chartered Bank. He made the comments in May of this year, when Standard Chartered announced more than 7,000 job cuts over the next four years. He later apologized for the upset caused by the comments, but he didn't retract them. This is Reuters' EconWorld. Every week we go deep on the economic principles and ideas driving the biggest news around the world. If you want to tell us what you thought of this week's show, just drop us a line in the comment section of your favorite podcast platform. This episode was produced by Eliza Davis Beard. Sound design and engineering was by Jonathan Steyers and Sebastian Sommer. Our executive producer is Lila de Kretzer. Remember, for all your daily news, just ask your smart speaker for Reuters World News, seven days a week. I'll be back next week.