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i
Capital
®
Volume 25 Number 17
Capital Dynamics Sdn Bhd
11
Overall, the Hong Kong economy will do well in 2014 and 2015 and its stock market will continue its
upward trend. For now,
i
Capital still expects the Hang Seng Index to test the 50,000 mark for the
long-term
. For the
medium-term
,
i
Capital retains its outlook at a range of 21,000 to 33,000. It is the
short-term outlook that is less clear. On balance,
i
Capital retains its
short-term
outlook of the Hong
Kong stock market with a range from 20,000 to 30,000 but the index has equal chances of moving
either way. See Stop Press for the latest.
A.2. (iv). China on the move
On 18 Mar 2004,
i
Capital started an exclusive section on China, an immensely important, huge, and
complex nation. As our managing director described it, the emergence of China is an event that
happens only once in a millennium. Tracking its fast emergence and understanding its development
will therefore be useful not only for investors but also for businessmen and management. This
exclusive series “China on the move” started with “A Brief History of China”, made up of 8 parts,
started with the Xia Dynasty (
夏朝
) and rounded up by examining Deng’s reforms.
China Today
China today is the world’s most exciting, dynamic, and successful economy. What drove China’s
phenomenal growth in the past few years ? In the previous parts of China Today, we examined her
economic structure, sources of growth, the current conditions, and her future.
Employment and Economic Growth
China’s economy is in a goldilocks condition, not too hot and not too cold. Hence, the People’s Bank
of China is not tightening its monetary policy nor loosening it. It will just ensure that there is sufficient
liquidity in the economy to facilitate a stable growth. What is a stable growth rate for China ? Currently,
it is around 7-7.5%. This growth rate is largely determined by employment. The relationship between
employment and economic growth has been well established by economic theory. The Phillips Curve
and the Okun’s Law are two of the more well-known theories that explained the relationships between
inflation and unemployment rates and unemployment and output.
Since China’s economic reforms began in
the late 1970s, the relationship between
economic growth and employment can be
categorised into a few phases. First, from
1978 to the early 1990s when China’s
economy expanded at a rapid rate, the
employment elasticity was around 0.25,
meaning every one percentage point (ppt)
of GDP growth is associated with
employment growth of 0.25 ppt. Then,
between the early 1990s to the time just
before the US-led global financial crisis in
2008, China’s employment elasticity fell
due to rapid urbanisation which saw surplus labour in the rural areas moving into the industrial and
services sectors. In recent years, following progress made in the industrial structure, the employment
elasticity has turned up again. Increased demand for various services saw the services sector
surpassing the agriculture sector in 2011 to become China’s largest employer – see
figure 1
.
Now, for every ppt that China generates in growth, 1.3 mln to 1.5 mln jobs are created, up from 1.0
mln a few years ago. Every year, there are 12 mln new entrants entering into the labour market. To
absorb these new entrants, China’s premier Li Keqiang said that the economy must grow by at least
7.2% in order to cap the urban unemployment rate at around 4%. In other words, 7.2% is the minimum
growth rate that the Chinese government will tolerate in order to maintain a stable employment
condition. This compares with the target of 8% growth prior to 2008.
China is a big country with immense geographic and cultural diversity; she is home to 56 official ethnic
groups. Maintaining social stability is always the top priority of the Chinese government. Hence,
creating sufficient employment opportunity every year is one of the most important tasks for China’s
policymakers. Below are the major challenges that the Chinese government is facing currently in its
efforts to create a stable employment condition.
First, although the services sector has become the largest provider of employment in China, the
primary sector still provides about 35% of employment to the Chinese people, which is close to 260
mln people. As the urbanisation rate accelerates, more and more people will be moving to the urban
0
50
100
150
200
250
300
350
400
450
500
1978 1982 1986 1990 1994 1998 2002 2006 2010
mln persons
Figure 1: Employed Persons
Primary Industry
Secondary Industry
Tertiary Industry