China’s gig economy | Econ World

[00:00:00]Can we talk about your side hustle?

[00:00:02]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, [music] 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 hiring and [music] the firing. So stay tuned. I'm Carmel Crims 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 [music] gig economy.

[00:01:16]>> [music] >> So to talk us through all things China and the gig economy, I'm joined by our lead writer for China, Marius Saria.

[00:01:23]Marius, how are you?

[00:01:24]>> I'm very well, thank you. Happy to be here.

[00:01:27]>> Now, Marius, uh, being people who cover economics, definitions are important. So what do we 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?

[00:01:42]>> Yeah. So, I think I 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.

[00:02:01]Many people working in manufacturing don't really have full-time contracts.

[00:02:06]people who work in the construction industry don't have full-time contracts.

[00:02:10]You've got like everywhere else, you've got people who are selfemployed or freelancers, but you also have obviously the the platform economy just like in any other countries.

[00:02:25]>> I mean, the scale, the size of the gig economy in China, it's it's unparalleled really, isn't it? It's it's projected to hit, I think, is it 320 million this year. nearly half of the the Chinese workforce.

[00:02:36]>> The the estimate is very uh recent.

[00:02:38]We've been looking for estimates of size for for a while, but I think last month we had a report by think tank China new employment forms research center. It's one of the think tanks in in in China and they estimated that 320 million people like you said. Um, and that's like 40 million more than the year before and 40 million more than the the the year before that. I think the the furthest back their estimates go is 2019 when it was half the numbers that we have today.

[00:03:16]And yes, it's it's almost uh the size of the entire US population if you think about it. It's I think 44% of total employment in China.

[00:03:29]If you only take urban employment and many of these jobs would be in the in the cities that that percentage gets closer to 70%. So it's huge.

[00:03:40]>> Wow. And and the difference there you mentioned like say for instance the US like in in the US the gig economy is very much concentrated on the services sector but as you talked about there in in China it's across many different sectors. It also includes factory work, manufacturing.

[00:03:55]How did we get here? How did it get so big? Because when you traditionally think about China, I'm going back a bit, you know, under under Mao say for instance, you know, it was a planned economy. Uh there was that concept of the iron rice bowl, you know, so you you took a job in a factory and it was a job for life and and in return for working there for years and years, you know, you were kind of guaranteed social protections and and now we have it feels like we've done a 180 and nearly half the workforce is is gigging. So how did how did we get to this point? Well, I mean since you mentioned Mao, you know, 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 and then uh Deng Xiaoing comes on and he liberalizes the the economy and both in urban areas and in rural areas.

[00:04:55]Agricultural productivity increases.

[00:04:57]People no longer have to stay on the farm. They move to the to the cities. Um and they find work wherever they can find work. and and and that sort of transformation became it was it was made at a very rapid pace you know and I think like everywhere where you have these big trans transformations you know this is not just a Chinese issue regulations don't necessarily keep up with um the change in the the economy so you end up with uh a huge influx of rural population going into the the the cities and they work in factories, they work on construction sites. You know, this has been part of the the story of the the very impressive Chinese development that we've seen over the past couple of decades, right? The the migrant workers are those who build the skyscrapers, who build those incredible highways, the railroads, and and and and so on. and they're the ones who kind of man the factory floors of the biggest industrial complex in in the world. But not all of them work on formal full-time permanent contracts, right? So some of them have been in this sort of state of flux and have had this sort of job in security, you know, ever since the beginning of, you know, what we call now modern China.

[00:06:32]And is there like a typical sort of um typical gig worker? I mean, is it is it does it tend to be people from rural areas or is it kind of does it kind of cover a multitude? Cuz that was the traditional view that it was sort of migrant workers coming into urban areas looking for sort of pick picking up gigs as they got them.

[00:06:52]>> I guess your typical, you know, blue collar worker is a male from from the countryside in China. If we're talking about daily drivers or delivery uh riders, yes, they they are indeed most of them male. We see more and more female drivers and and riders on on the road, but increasingly what we're seeing now is that they're younger. They're 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 the job market is very tight. It's very competitive for them. It's very difficult to to find any sort of formal type of employment.

[00:07:40]So, they fall onto the the gig economy which is um increasingly becoming like the the social safety net in in in China. And also increasingly you you you see white color workers falling if you like into the into the g economy.

[00:08:02]We spoke to some of some people like that as well. You know one person for instance he is 30. He's got a computer science degree. He worked as um software tester until late last year when he lost his job.

[00:08:23]In January, he started driving for a ride hailing app.

[00:08:30]Um in the meantime, at night, he was trying to look for um other jobs in in the tech industry. Couldn't find any.

[00:08:38]And now he's talking to us in in the middle of the summer and and and he's saying he's not looking for tech jobs anymore because he knows this summer there's a record number of uh university graduates in in China 12.7 million people about to join the workforce and he's finding very hard to to to compete and also a lot of software testing can be done by AI now. So companies, you know, in in China in particular, they're adopting AI at a faster pace than perhaps anywhere else.

[00:09:19]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 um hiring. Right.

[00:09:34]Tell us Marius about the hooku residency system in China. It kind of particularly lends itself to a kind of a gig economy model.

[00:09:44]>> Yeah, it's it's a very um unique system.

[00:09:48]The hook is basically a residency permit. So you can have rural hookco or an urban hook. But this basically divides society according to the place of birth. And in in 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 hookco and you work in in the city, you may well contribute to social insurance schemes in 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. And in many cases, this would be access to the universal basic pension income of 148, I think it's 148 or 168 y per month. So 20 25 bucks. It's very hard to live on that kind of income. You supplement that with farming, but you know as you as you grow older then you kind of rely on your children, friends and family to support you. Um so it's very hard. The hook um actually dates back to the Mao era and um well some historians say it dates back even further than that but um during uh Ma's regime they they used hook code to deliver uh food rations you know during the great famine um as it where 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.

[00:12:05]Now, we're not talking about dramatic things like that, but it is still something that weighs on consumption generally in in China because uh these people don't feel like they're being adequately protected by the welfare system.

[00:12:31]And so they tend to save more as a percentage of their income than your average urban um employee.

[00:12:41]And and this ties down a lot of money in savings um 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, you know, 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 it's a it's a barrier to putting down.

[00:13:02]>> Yeah.

[00:13:02]>> Yeah.

[00:13:02]>> So it kind of lends itself to the gig economy but then yeah kind of raises the sort of the downsides of that economy.

[00:13:09]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 [music] 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.

[00:13:57]Marius, from from your team's reporting, I mean, do people like the flexibility and and the independence that the the gig economy offers? Because that there are benefits to this.

[00:14:08]>> Yeah, I mean, some some people do see benefits.

[00:14:13]It does depend on a lot of nuances and circumstances and and and uh personal context there. But yeah, 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 um you know exposed to the weather outside and you know they're driving a car >> and they're happier with that. And even people who used to have white collar jobs, you know, they're um many of them kind of say they're they they they got sick and tired of the infamous 996 work culture in China where you work from 9:00 a.m. to 9:00 p.m. 6 days a week.

[00:15:03]They got tired of workplace politics.

[00:15:07]They got tired of their bosses. um now they can be they can be they can be their own boss, right? Um no one forces you to make a delivery >> um or take a ride um if you don't want to do that. Um you know but that said and most people who do delivery work who do ride hailing who you've spoken to work very very long hours and more hours than your typical 996 worker actually because every hour gets them an income. Right.

[00:15:42]>> Right. So and that's the downside.

[00:15:44]Right. and it's kind of at university so that it can be precarious work, it can be low paid and it doesn't offer the same protections that a that a kind of a contracted uh job offers. That's that's that's the downside. the the biggest concern that economists um have um is that social insurance contributions for uh people in flexible employment in China are voluntary, >> right?

[00:16:16]>> Um so um >> does that mean no one pays? the majority of people choose not to pay um because >> uh they um they can't look too far into the future.

[00:16:30]>> You know, many of them tell us that they prefer to have a control over their savings. If something happens then they have immediate access to their own savings >> instead of you know contributing to estate scheme where you can only access u for instance your pension after you after you retire.

[00:16:58]So you know from their perspective it just gives them a bit more control.

[00:17:03]I think from 320 million people who are in flexible employment um uh I don't think we have the numbers for for this year but last year um uh according to some articles in in in state media citing government reports only about 70 million of uh people in flexible employment uh contributed to the urban pensions.

[00:17:33]scheme which is a scheme that tops up the the basic universal um pension which like I said it's negligible.

[00:17:43]>> So that's a big fiscal headache for Beijing.

[00:17:47]>> It's it's a big fiscal headache for Beijing. um you know they uh they had problems with their welfare system you know irrespective of this new headache that they're facing you know there was a um a report by the China um Academy of Sciences in 2019 I think it was when they said the the pension system as it were would run out of money by 2035.

[00:18:22]Now, they updated that estimate more recently and they said, you know, it has an extra eight or nine years as the retirement age goes up, but it's still at risk of of of being um in in deficit and running out of money.

[00:18:43]So, so that's a huge problem. Um and I think you know if you if you if you look at any country in the world you have similar issues with gig work right um many people whom even the freelancers and the self-employed choose not to contribute to to certain schemes right but in China this is a problem because the welfare system was thin was so thin to to to begin with.

[00:19:17]>> Marius, for like for you know delivery drivers now in China compared to say their grandparents who might have worked like in a factory you know the same factory year in year out who's better off like you know in terms of their hourly earnings are they are they you know are they are they better off than previous generations or you know well yeah what's what's their lot? I think if you compare incomes with a generation ago, they're they're probably better off.

[00:19:49]But I think what's um changed is that for this new generation, the people in their 20s and 30s now, they don't have the same optimism about um the future that their um parents had.

[00:20:07]you know the their parents had very low expectations. Um you know their own parents had gone through the famine during the Mao era right so you know the transformation um in China after Mao was huge and they definitely benefited from that but I think uh the feeling was that it was only going to get better and better and better. Um >> and this is um not to the impression that people in their 20s and 30s have um at the moment.

[00:20:43]>> And the other issue of course is youth unemployment is a is a real problem in China. So you've got more and more people seeking out these these uh you know kind of gig economy jobs and it's it's sort of it's it's creating pressure within that market. Right. It >> is creating pressure. We spotted four cities um issuing warnings about market saturation in the ride hailing um industry since April. Uh one of them is Shenzen.

[00:21:13]It's a huge city of almost 20 million people right across uh from from Hong Kong.

[00:21:19]So it is creating a bit of a problem um in in certain cities that can't handle such a big influx of uh gig workers um into into some of these sectors.

[00:21:36]This has uh put pressure on wage growth um in these uh 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. Mhm.

[00:21:54]>> Um, and you know, this might seem all right if you're if you're based in London, um, or somewhere else in Western Europe, but then if you if you think about an economy that's growing 5% a year, then that becomes a huge problem.

[00:22:15]>> And, you know, you mentioned, you know, the average earnings for a delivery driver is about $4 an hour. like h you know how how far does that get you in a in a big city and how does that compare with you know is there is there a national minimum wage in China you know how does the four bucks compare >> so the the minimum wages in in some of these cities are um and I think in a big city it's less than 2,000 yan per month now there's not many people who who work on minimum wage because it's just so low Right.

[00:22:49]>> Um but the the 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 in in your city. So you can't really rely on unemployment benefits.

[00:23:03]You actually have to find some sort of work. Um and that's usually gig work um at least temporarily at a four uh dollar an hour rate. I'm not so so sure how that um translates for every single person. uh on a on a monthly basis.

[00:23:21]But uh some of the workers um who drive cars or um scooters and do delivery work, they earn on a gross basis, they earn about 10,000 yen or 12,000 yen per month. But then almost half of that income goes on renting the actual car, paying for the insurance, charging or fueling the car.

[00:23:50]They have to eat out all the time because they're always on the road. Um, and so that eats out a lot of their their wages, and they're left with less than $1,000 a month, >> which is um not a great um salary if you're in uh Shanghai or Beijing because rent is expensive there and everything um um you know, your cost of living is is is pretty high.

[00:24:18]>> There's a lot of scarring, isn't there?

[00:24:19]A lot of scarring from the the property downturn, right? people, you know, got burnt putting their savings into, you know, apartments that maybe didn't get built or half built or like so the property crash is still there's still a big legacy there, isn't there, in terms of demand >> and and and it's still ongoing.

[00:24:38]Um, China hasn't reached uh the bottom of its property downturn.

[00:24:45]many of the um construction workers um in that industry um now end up delivering food or driving cabs and and and and so on. So they lost one source of income. Now they're uh relying on this gig work for for their incomes. Um it's a it's um it's a difficult um way of living.

[00:25:12]you know, there there aren't too many solutions um to that because um um every reform you want to put on the table comes with um massive tradeoffs. [music] If you're enjoying the show, why not check out the newsletter that accompanies it, also called Reuters Econ World, [music] 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.

[00:25:41]>> [music] >> In the final part of the show, we look at some of the changes China is introducing for gig workers.

[00:25:51]Marius, there's a big political risk, isn't there, to uh you know, Xi Jinping and and and China's leadership from this this big group of of gig workers, right?

[00:26:02]I mean we have seen in other Asian countries like a shortage of good jobs has led to kind of rise in in protests against political leadership. So there there is a risk isn't there?

[00:26:14]>> I don't think we can measure that. Um uh very few analysts would kind of um adventure in that uh direction but um Chinese Communist Party just celebrated its 105th anniversary. community. But that said, employment is a social stability issue everywhere in the world, right? And and and China is um no different. In fact, in official documents, they refer as uh employment is um the bottom line.

[00:26:50]They they really do care about people having um access to to jobs and um earning an and and income. So, you know, the government um themselves they they they see, you know, any problems with employment as um um risks to to social stability.

[00:27:14]There um aren't many protests in China.

[00:27:18]They're very rare, >> but it's very hard to care about them.

[00:27:22]And, you know, we also have to talk about what's been happening over the past year or so. You know, 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, um you know, if you talk to people in China, there's a lot of uh pride in that. Um and um it does have to do um with um this investment heavy growth model that China has, but obviously the mood um um on the streets in in in China um is is not exuberant.

[00:28:14]China is um growing um um in a in a K-shaped fashion where exports and industrial output does very well but um incomes are lagging massively.

[00:28:29]People are falling out of formal work into um the gig economy. They feel less secure about the the future. They save more. They spend less. Um and then because they do that the problem compounds in time. Um um so that's obviously um an issue that um the authorities in China are aware of um they're mindful of and they'll they'll look to to address in um in in the near future. There there have been some efforts, haven't there, to kind of introduce protections for for gig workers in China.

[00:29:12]>> They've issued um some documents um calling uh for better protection and I think um the the platform companies uh have uh improved that to some extent. Of course, if you um speak to the workers, they'll tell you there's um um um some way to go in terms of um those improvements um in terms of um accident insurance and medical insurance and incomes and the penalties that they face if they um are late with um delivery and and and so on.

[00:29:55]But um you know the fact that um China is uh openly talking about this um means there's going to be more measures and uh regulations um down the line. Now, um I think most analysts um and economists and labor experts very much doubt that um Beijing is going to go all the way and make social insurance contributions mandatory for both workers and uh their their employers.

[00:30:34]These are pretty big in China. 10% um on average for worker and 25% of the the income um and it's come from the employer, >> right? Um but if you enforce that then um you're you're sort of reducing the ability of these um companies to create jobs and at the moment the gig economy is um one of the most important uh job creators in the economy >> and that's that trade-off that you're talking about there when you're talking about reforms right so if you the more you regulate the sector the less of a job creator it becomes and and and it is right now the shock absorber for the Chinese labor market, isn't it? It is it is providing jobs for people as they as they graduate. Um, yeah, that's the trade-off.

[00:31:25]>> The trade-off um certainly goes beyond the gig economy and and applies to the the Chinese economy at large if you if you will if you want. Part of what makes Chinese exports um cheap and competitive is um um also that many people working in factories are um in flexible employment um um and they have a weak negotiating position. If you start to regulate um certain industries and try to lift incomes um that way then uh 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. Um higher labor costs would uh eat into that. it will make uh Chinese exports um less competitive. So, you know, the fact that incomes are low in China and demand is weak is just the um um reverse um side of um their um incredibly powerful industry and incredible uh competitive manufacturing sector. And also the other side of this is that uh 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 like all quite futuristic industries don't necessarily require huge labor forces right and 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.

[00:33:22]>> That's right. Chinese factories are becoming more and more automated. We've all seen footage of the dark factories um which are almost entirely um robot um you know robotized.

[00:33:38]>> What about reforming the hooku system?

[00:33:40]Like what why is there any sign of them doing that?

[00:33:44]Yes. Um they've been pushing that quite actively um um from Beijing. Um but it has to be implemented at the provincial and municipal level. Um and um you know some cities um that are doing better economically. They welcome um more labor.

[00:34:08]They need to fill uh out empty homes and and find the bottom for the property sector. Um or they need to um bring more talent to their growing manufacturing um sectors. But not every city um and province in China can afford that. Um in certain places if you have um more people coming in that puts um quite a heavy burden on public services. Um and these cities um have debt problems that they have to deal with, >> right? Kind of hangover from the property bubble, right? They invested a lot in property.

[00:34:51]>> In indeed indeed they're kind of twin problems there. Um and expanding, you know, medical services or education services. um costs a lot of money although >> 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 from from their perspective I I you know they feel that they're following the right um strategy because it um uh keeps its um um geopolitical rivals um in in tech and that gives it more >> um security. Um but also you know it is pursuing you know technological leaps in all sorts of um sectors and who knows what productivity gains uh will come uh from that whether the bets um will come off or not. You know it's an it's an open uh question. Um but um if they do then then the question really is how much of those uh productivity gains will be shared with um labor um right and and and to what extent these productivity gains really lead to higher um incomes. So then China becomes less dependent on exports which essentially means other people in other countries earning more relative to their productivity than than in China. Um and and starts to rely more on their their local population.

[00:36:28]>> So where does this leave the 300 million plus gig workers?

[00:36:34]I many of the the gig workers we um spoke with um don't want to look too far into the future. Um for them today is hard enough.

[00:36:51]So um many of them just want to get through the day unfortunately.

[00:36:58][music] 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.

[00:37:09]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.

[00:37:19]So which CEO was it? Was it A Elon Musk the CEO of SpaceX, B Winters, the CEO of Standard Chartered [music] 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 [music] 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.

[00:37:50]This is Reuters Econ World. 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 [music] podcast platform. This episode was produced by Eliza Davis Beard. Sound design and engineering was by Jonathan Sters [music] and Sebastian Summer. Our executive producer is Leela Dretzer.

[00:38:15]Remember, for all your daily news, just ask your smart speaker for Reuters World News 7 days a week. I'll be [music] back next week.