In January 2024, China’s National Bureau of Statistics resumed publishing official youth unemployment figures. In December 2023 the youth unemployment rate was 14.9 per cent. Beijing suspended releasing the data in August 2023 following its steady year-on-year increase, eventually reaching an official record high of 21.3 per cent in June 2023.

A persistent problem of youth unemployment reflects cultural preferences and a deeper structural misalignment between an oversupply of tertiary graduates and a limited services industry that lacks the capacity to accommodate them.

During China’s ‘reform and opening up’ period, demand for education skyrocketed as it was perceived as a consumer good and a channel for upward social mobility, aggravating the gap between educational supply and demand. In the mid-1990s, in response to this scarcity gap, the Chinese government’s educational industrialisation policy orientation sought to marketise and decentralise the education sector in line with the principles of the global market economy. As government funding was allocated on a per-student basis, universities began accepting more and more students to retain funding.

This expansion coincided with the 1997 Asian financial crisis and mass layoffs of state-run enterprise employees in anticipation of China’s accession to the World Trade Organization. Further expanding the higher education sector and increasing student enrolments was seen as a way to absorb the shock and keep more young people out of a weak job market for a few years. As a result, university acceptance rates jumped from 33 per cent in 1998 to 92 per cent in 2021, with the total number of enrolled tertiary students increasing tenfold.

Vocational education continues to suffer from low social prestige due to sociocultural stigmas. Confucian ideals have resulted in education being the traditional gauge of social prestige, with those who ‘labour with their minds’ being socially ranked higher than those who ‘labour with their hands’. In an increasingly marketised economy, many Chinese people perceive vocational work as being insecure. Vocational education is seen as inferior and only an option for those who perform poorly academically. This creates additional pressure for young Chinese students to gain a university qualification.

There is also a financial pressure to obtain university qualifications. Tertiary degrees have become a new way of filtering applicants for competitive roles — jobs once filled by vocational graduates are now filled by tertiary degree holders. Employers perceive their quality as higher, increasing the reputation of the company and creating downward pressure on the job market. This societal perception, reinforced by vocational roles offering lower average salaries, exerts significant pressure on Chinese youth to pursue tertiary degrees and white-collar professions.

The other side of the structural misalignment — the coveted services sector — has been unable to keep up with this surge in the tertiary-educated labour force. The service industry only makes up 53 per cent of China’s GDP. This is below the global average and significantly lower than advanced economies, such as the United States’ 78 per cent.

While the service industry has consistently expanded its share of total employment in recent years, the supply of low-skill service jobs such as ride-hailing and delivery services expanded more rapidly than their skill-intensive counterparts. Many tertiary graduates shun these jobs, seeing them as ill-suited to their recently acquired skills. Those who do accept low-skill service jobs are significantly overqualified.

The sector’s incapacity to absorb Chinese youth has also been exacerbated due to several additional factors. China’s COVID-19 lockdown policies decimated small- and medium-sized enterprises, which previously accounted for around two thirds of total urban employment. Prior to the pandemic, businesses in the platform economy, after-school tutoring and real estate development hired large numbers of graduates.

But due to regulatory tightening since 2020 and domestic economic slowdowns, all three industries have experienced significant contractions, limiting the number of graduates employed and increasing layoffs. Raids on foreign businesses in the name of national security and ongoing geopolitical tensions have spooked foreign firms and investors, causing mass withdrawals from the Chinese market. All of these have further reduced the supply of white-collar positions, just as the demand for them is surging.

With limited options in the private sector, the 2024 civil service exam highlights just how acute the misalignment is. A record three million applicants applied for 39,600 vacancies. Despite the available positions more than doubling since 2019, the number of applicants for every job has continued to increase from around 53 to 77 on average in the same timeframe.

Beijing has implemented modest policies to address China’s alarming youth unemployment rate. They have improved tax incentives for businesses to hire unpaid interns and expanded recruitment quotas for the civil service. In 2022, Beijing additionally elevated the official status of vocational schools and increased their funding.

While these changes are welcome, they alone do not address the driving causes of this misalignment. The government should aim to further narrow the gap between vocational and tertiary graduate salaries and do more to improve social and cultural perceptions of vocational education to alleviate job market pressures in the future. This could help turn the rising tide of unemployment for China’s highly educated and ambitious young graduates.

Henry Devitt is New Colombo Scholar studying at The Australian National University.