China’s crisis deepens: 48 million unemployed

China Worker - China’s real unemployment rate is 10.2% according to a top Chinese economist. That’s double the official rate – currently just 5% – claimed by the CCP regime. A rate of 10 percent adds up to around 48 million people out of work – more than the entire population of Spain or Argentina. Furthermore, even this does not capture the true level of unemployment in China, because the rural unemployed are in practice never counted.

This was one of several startling revelations in a speech made by Li Daokiu, director of the Center for China in the World Economy at Tsinghua University’s School of Economics and Management. Li has been a longtime advisor to CCP leaders and China’s central bank.

In his speech to a recent online forum hosted by Renmin University, Li dismissed the idea – heavily hyped by Xi Jinping’s regime – that current growth sectors such as advanced manufacturing and AI can “pull up the entire economy”.

When a leading CCP-connected economist lifts the curtain of state obfuscation, even just a tiny bit, confirming that China’s economic crisis is much worse than has been reported by the lobotomized official media, this also tells us that a state of alarm and even panic is spreading within the capitalist elite.

Chinese economists run significant personal risks if they overstep official strictures on spreading “negative news”. Clearly, they must be very agitated if they dare to put a question mark on the government’s official narrative. The truth is dangerous, as the ancient historian Sima Qian said, and this is especially the case in the Xi Jinping era. Chinese economists today find themselves in much the same bracket as the hospital whistleblowers who tried to warn of an impending public health catastrophe in late 2019 (Covid-19).

Gao Shanwen, another prominent economist who in 2024 made headlines when he questioned the reliability of China’s official GDP statistics, was punished, silenced and driven out of his job as chief economist at SDIC Securities. Xi Jinping personally ordered that Gao be investigated. This was because Gao said that China’s growth rate was likely closer to 2 percent rather than the official government figure of 5 percent at that time. Gao died recently, aged 55.

Downwards in 2026

The year 2026 has only seen China’s economic downturn become further entrenched. This has been partly hidden by exports, which are still growing strongly (though half of China’s export growth this year is tied to the global AI bubble), while all other economic trends are heading downwards.

The government released GDP data on 15 July showing second quarter growth of 4.3%. Aside from the ‘Zero Covid’ lockdown era, this is the worst reading since GDP data began publishing in the early 1990s. It is also not even accurate. We, like a growing number of others, believe China’s GDP and other economic data sets (such as the official unemployment rate) are manipulated to look better, to avoid panicking investors and to uphold “confidence”.

Investment – the motor of any economy – has now been in decline for more than a year, and this is based on official figures. Fixed asset investment (FAI), which measures all investment by private and state-owned entities in land, infrastructure, factories, machinery and vehicles, was -5.7 percent in the first six months of 2026 YoY (compared to the same period last year). This follows a full-year fall of -3.8 percent in 2025. Furthermore, the pace of decline for investment is accelerating (from -4.1% in the first five months to -5.7% in the first six months).

Something is very seriously amiss. China’s authoritarian state-capitalist economic model is traditionally far more dependent on investment than other capitalist economies. For investment to go into reverse like this – in China – is a big change. Those on the left who advance various theories to suggest that CCP-capitalism is ‘superior’ and ‘crisis-proof’, due the state’s bigger role in the economy, have a tough job explaining these investment numbers for 2025 and 2026.

Li Daokiu identified falling investment as one of the two main issues facing the economy (the other is unemployment). “A cumulative contraction in fixed-asset investment has only occurred twice in the statistical history of the People’s Republic of China: in 1961 and 1967. The severity of the current contraction is unprecedented,” he said.

The two years he cites were during the disaster of Mao’s Great Leap Forward (1961) and the height of the ‘Cultural Revolution’ (1967).

The unemployment mystery

We already knew the official unemployment numbers were a fiction. The government only publishes data for urban unemployment. It published percentages but never gives actual numbers – deliberately obscuring the problem and obstructing scrutiny and verification. Unemployment in rural areas is not counted at all.

The urban labour force is approximately 475 million strong, but 40 percent of this – around 190 million workers – are migrants who are denied access to unemployment benefits. The current ‘surveyed’ unemployment rate is officially 5 percent (around 24 million unemployed). Li Daokiu’s calculations add an additional 24 million ‘long-term discouraged’ unemployed, giving a more accurate 48 million total.

In his Renmin speech Li Daokiu explained how his team re-crunched the unemployment numbers:

“Using foundational National Bureau of Statistics data, we recalculated this metric by including the ‘discouraged labor force’—those who have been unable to find jobs over the past two years and are no longer counted in official labor statistics. They have not given up, but are still actively seeking work. By adding them back into the calculation, we estimate the broad unemployment rate currently stands at 10.2 percent. This represents about 24 million long-term discouraged unemployed individuals, posing a significant risk to social stability.”

These are staggering and politically sensitive numbers. No wonder the CCP’s statisticians don’t want such numbers to get out. Behind systemic statistical blackouts and obfuscation, the CCP dictatorship wants to conceal the full scale of the economic crisis from the population, as one of the tools it uses to maintain its rule. But in so doing they also inadvertently risk blindsiding themselves to the “significant risk to social stability” that Li warned about.

A lot of observers and media commentators are baffled and disorientated by the workings of dictatorships, especially a near-totalitarian regime like the CCP. They cannot fathom why Xi Jinping’s regime, ruling the world’s second biggest economy, disseminates false information about the condition of its economy.

When a lone pilot killed himself and injured 13 others by crashing his light aeroplane in broad daylight into the 86th floor of Beijing’s tallest skyscraper, the CITIC Tower, many commentators were shocked by the speed and totality of the subsequent news cover up. China’s media maintained total silence. All traces of the incident, which happened on June 26, were erased on social media inside China’s ‘firewall’. This included pictures of the building that were unrelated to the incident.

“Hours later, it was like nothing had happened,” noted CNN. The BBC described an “information vacuum”. Almost one month after the crash this is still the case. China’s main media outlets have not issued any statement on the crash. The single exception was the local CCP government in Chaoyang district, covering the crash site. It posted two short statements on its WeChat account, which were also soon deleted.

If something similar had occurred anywhere else in the world, that government would surely have opted for massive media coverage, not just to show it remained in control, but more importantly to turn this apparent suicide attack into political capital, rallying public support and singling out scapegoats. It is very telling that Xi’s regime felt it could not follow this playbook.

Why it was so afraid and determined to stamp out all news coverage is still unclear, although the evident paralysis of the CCP’s military and air defences, reducing the capital’s strict no-fly zone to a farce, was surely an embarrassment. Other factors connected to the byzantine power struggle within the CCP dictatorship, and waves of military purges, may also have been at play.

This example is illustrative. This is how a dictatorship like the CCP systematically covers up and suppresses unfavorable or embarrassing news when it deems this necessary for its survival. Whether aerial terrorism, or the true scale of deaths from Covid-19, or the killings by the army in June 1989 – “nothing happened here”. The same censorship is used to suppress discussion about bad economic data such as the scale of the current unemployment crisis.

Fewer are sitting the gaokao 

During the recent gaokao (National Higher Education Entrance Examination) in June, an official online account of the CCP Youth League (tuanpai) posted the following poor attempt at dark humour: “A message to yourself on exam day. If you don’t get in, you’ll be delivering food in four days. If you do get in, you’ll be delivering food in four years.” The post was removed within a day.

450,000 fewer students took the gaokao this year, from 13.4m in 2025 to 12.9m in 2026. This is the second consecutive year of decline. This is not only due to the population crisis. The drop in numbers sitting the exam is greater than the fall in the number of 18-year-olds (260,000 fewer compared to 2025).

As China’s birth rate collapses this will add even greater pressures. Last year’s total of 7.92 million births is less than half the level when Xi Jinping took power in 2012 (19.7 million) and even down to levels last seen in the 1730s according to some demographers. But the main reason that fewer are taking the gaokao today is because growing numbers of young people think a university education is pointless in the era of mass unemployment.

This year a record 12.7 million people graduated from college – a 480,000 increase from 2025. They enter a brutally competitive jobs market made even more treacherous by the CCP’s fanatical one-sided drive to embrace AI, which is obliterating millions of white-collar jobs and further squeezing salaries. The Xi regime’s obsession with AI is an inseparable byproduct of the AI-laced superpower showdown with US imperialism. It is not simply an economic question in other words but a geopolitical and existential one. Ukraine and especially the Iran war show that the world has entered the age of AI-warfare and even “AI-imperialism”.

Gig economy – more overcapacity 

For the first time in three decades, the CCP refused to set a target for job creation in the ‘five-year plan’ released in early July by the Ministry of Human Resources and Social Security. This compares to a formal target of 55 million jobs per year during the outgoing five-year period. This development is both an admission of failure and an implicit warning of a looming jobs massacre as AI is more comprehensively introduced to all sectors of the economy.

Xi’s regime has shown itself completely bereft of solutions as the scourge of mass unemployment grows. It relies on propaganda. Also on the ‘sponge’ of the informal gig economy, with no pensions, health insurance or job protection, which now encompasses 44 percent of the workforce. Employment in the manufacturing sector fell from 52.4 million in 2014 to 36.8 million in 2024. In the construction sector, battered by the real estate and infrastructure slump, employment is down from 29.2 million in 2014 to 13.5 million in 2024 (source: China’s 2025 Labour Statistical Yearbook).

The China New Employment Research Centre forecasts that employment in the gig sector will grow to 320 million this year from 280 million last year. This is yet another unsustainable feature of Chinese capitalism in the 2020s. As the South China Morning Post commented, “China’s gig economy is an employment reservoir – but is the well drying up?”

Gig work is already massively oversubscribed in some sectors such as ride-hailing drivers and delivery workers. Wages are falling as gig workers under the tyranny of the ‘platforms’ undercut each other and themselves. That is capitalism, no surprises there!

Even livestreamers and ‘micro’ film-makers risk being displaced by AI. Shenzhen, with over 142,000 ride-hailing cars on its roads, has officially declared the sector “saturated” as a big surge in new gig workers has “heavily outpaced demand”. AI and driverless taxis are set to exacerbate these trends. Shenzhen’s city government warns that based on current numbers, drivers can only expect an average of 13.1 fares per day, while 23 fares is considered the minimum needed to make a living.

Involution and lying flat

But wages are falling throughout the economy. Local government employees, doctors, teachers, transport workers and others have faced several years of wage arrears and delays as the local government debt crisis intensifies. Layoffs and pay cuts affect workers in almost every industry including Xi’s favoured “new productive forces” such as solar, EVs and tech companies. BYD, the world’s fifth largest car manufacturer, cut assembly line wages from 5,000-6,800 yuan down to 3,000-4,000 yuan last year as part of a fierce ‘involutionary’ price war in China’s EV sector. BYD also cut 100,000 jobs last year. The biggest solar companies shed 87,000 jobs in 2025, a third of their total workforce, as they posted a combined loss of $60 billion. (Involution or neijuan refers to vicious self-defeating competition; when an economy “eats itself” to survive).

Due to price wars stemming from insane levels of overcapacity, 24 percent of Chinese industrial companies made losses last year. The share of loans going to industrial firms has doubled in the past ten years, as the economy is increasingly propped up on debt. “China’s corporate debt to GDP ratio is among the highest in the world, and it continues to increase”, reports the IMF.

As the gig economy risks bursting at the seams, the CCP propaganda machinery tries to shift the blame onto the unemployed themselves and on the familiar bogeyman of “foreign forces”. Accusing the young unemployed of choosing to “lie flat” (tǎng píng) rather than seek work, Beijing’s Ministry of State Security pointed the finger at so-called anti-China forces aiming to “erode the spirit of perseverance among China’s youth and even undermine the foundational values of our society.”

The ministry accused unnamed foreign organisations of funding and promoting social media videos and continuously “promoting negative notions” including to lie flat. (Lying flat is a popular semi-rebellious concept that spread on social media in 2021, and rejects to varying degrees the economic rat race of Xi Jinping’s ‘China Dream’: long work hours, owning an apartment, marriage, children, debt).

In his July 11 speech, Li Daokiu issued a key warning about the financial crisis of China’s local governments. Of course, he wrapped his remarks in effusive declarations of “full confidence” for the economy’s “bright future” lest they be received as “negative” and “trouble-making” in Zhongnanhai – Li cannot have missed what happened to fellow economist Gao Shanwen.

“The pillar of infrastructure has been local governments”, he said. “By our repeated calculations, over the past 20 years, local government infrastructure investment plus daily expenditures averaged 41 percent of GDP annually. This far exceeded household consumption and served as the primary driver of the Chinese economy. Approximately 75 percent or more of local government expenditure went toward infrastructure, with only a small fraction used for daily operations. This massive spending generated an enormous multiplier effect on the economy.”

This is a process we Marxists have followed attentively in recent years. The collapse of the property sector, which began six years ago, spread to local governments whose financial base had for many years become merged into the ‘hot’ property sector and vastly inflated land prices. This Ponzi scheme came crashing down, causing multiple financial crises across China’s local and regional governments, requiring successive and ever-growing financial bailouts from Beijing (mainly by issuing ‘special’ bonds to swap out old debts for new debts).

This is a key part of the process of Japanification that we have discussed extensively. It is not just a property crash, as occurred in Japan in the early 1990s, but the huge increase in debt which weighs down like a mountain on the whole economy. China’s debt-to-GDP ratio is now around 350%.

The outcome, while not a deep recession combined with bank collapses as occurred in the US in 2008, and similarly in Southeast Asia in 1997, is however a prolonged multi-year phase of economic stagnation. In Japan’s case this has lasted for around 30 years during which time it has averaged 1.1 to 1.6 percent GDP growth (World Bank).

Li’s argument is that local governments were one of the two main engines of GDP growth for two decades, accounting for 41 percent of GDP, a bigger share than consumption (35-38 percent – his figure) or exports (25 percent – our figure, sourced from Hong Kong Monetary Authority). Li argues that even the economic impacts from the property sector downturn “pale in comparison with the contraction of local governments”, which have “effectively become… a ‘black hole’ that drains energy from the economy”.

The “primary” problem is local government debt, he says, and that local governments have “become a ‘blockage’ in the overall operation of the economy… a large proportion of the money borrowed by local governments simply circulates within the financial system without producing new economic activity, because it is used to repay existing debt. This is the financial manifestation of the blockage currently affecting the economy.”

We agree with much of this description. Where we Marxists disagree with bourgeois economists like Li is in his prescriptions, which are mainly for Beijing to double the size of its local government bailout, from the 12 trillion yuan currently planned, to 24 trillion yuan or more. The logic behind this is a form of ‘quantitative easing’, as applied by the US and other Western governments and central banks post-2008. This policy poured so-called cheap money – fictitious capital – into the financial system to keep it afloat while these companies offloaded their bad debts, effectively shifting those debts over to the state, the public sector and ordinary households.

Li’s supposed remedy is really quite similar to this, except that in China’s state capitalist model it is the local governments, more than the banks, that play the pivotal role as the main conduits to channel finance into the real economy.

While Li Daokiu’s proposal for a bigger bazooka-style bailout of local governments might buy some time for Chinese capitalism, by easing the short-term debt crunch, it would not solve any of the underlying problems within the economy. In effect, his solution is just a variation, on a bigger scale, of the Xi regime’s current policies. It means propping up the local government sector with even more debt. This debt keeps growing today even as local governments “contract” – something Li himself admits.

In coming issues of Socialist magazine we will take a deeper look at the process of economic Japanification in China, which is now being recognised – belatedly – in a growing number of capitalist economic reports and analyses. Both the capitalism of the West and in China are descending into crises. The answer to Chinese capitalism’s Japanification crisis is not to ‘reform’ it along Western capitalist lines, which is tantamount to “escaping the dragon’s pool, only to entering the tiger’s den”.

The only way out is socialist change, based on the overthrow of the capitalist CCP dictatorship and a socialist and democratically-organized economic plan with public ownership of all big companies under democratic working class control and management.

This would require a corresponding full-blown democratization of all levels and structures of government and the economy, through free elections, immediate and full democratic rights, freedom for political parties, free speech, and the abolition of authoritarian censorship. The creation of an independent workers’ movement to fight for such a revolutionary socialist political program is the most crucial ingredient to lay the basis for such a solution.

On a capitalist basis, China is heading inevitably into a deeper phase of economic crisis, inseparably linked to potentially explosive new flare-ups of conflict between the number two and number one imperialist powers, China and the US. The working class has no stake in either of those imperialist camps. It has a stake only in the global struggles of the working class to defeat capitalism and reorganise the whole world on socialist lines.