China's Graduate Salary Slump Is New Economy's Competitive Edge

(Bloomberg) -- Wages for China's newest college graduates are plunging even as their ranks rise to a record. That's unwelcome news for the nation's young elite, but it may aid policy makers striving to shift the economy into higher technology industries and services.

Monthly salaries plummeted 16 percent to 4,014 yuan ($590) this year for a second-straight annual decline, data from recruitment site Zhaopin.com show. The Ministry of Education estimates that 7.95 million will graduate this year, almost the population of Switzerland.

China is losing competitiveness in lower-end industries from textiles to furniture as wages and other costs surge. Policy makers' efforts to offset that by shifting the economy toward higher-technology industries and services -- from aircraft and robots to research and development -- may get a boost from an army of highly educated and low-paid graduates.

"This is China's new competitive advantage," said Song Yu, chief China economist at Beijing Gao Hua Securities Co., Goldman Sachs Group Inc.'s mainland joint-venture partner, in Beijing. "When you walk into a bank here, even the counter women are highly qualified. The government has a good hand of cards if they can play them well."

But there is a downside: lower pay is a potential headwind for consumers who have been a key prop for the economy as old economic drivers faded. Consumption including government spending contributed 77.2 percent to gross domestic product growth in the first quarter, while services made up a record 51.6 percent of total 2016 output.

Global Impact

Downward pressure on professional salaries also may spill out beyond China's borders. Technology-enabled globalization of services lets professional work flow unimpeded around the world, and while services historically have been provided in person, that's less true of modern finance, accounting, or consulting, according to Yale University's Stephen Roach.

That makes professional work easier to send offshore, and could expose U.S. knowledge workers unaccustomed to tough competitive pressures to more job insecurity, Roach, a former non-executive chairman for Morgan Stanley Asia, wrote in his 2014 book "Unbalanced: The Codependency of America and China."

Chinese grads would be much more attractive hires in a global market as they're paid less than a sixth of their counterparts in the U.S. Salaries for recently minted college graduates rose 3 percent this year to a record $49,785 per year, or $4,149 a month, according to a report last month from Los Angeles-based executive search firm Korn/Ferry International.

Despite their low starting salaries, China's grads are finding it harder to get work this year,  according to Zhaopin's survey of 93,420 college graduates.

Even for those getting jobs, many weren't doing what they wanted, Zhaopin found. While only 6.7 percent of graduates wanted jobs in manufacturing industries such as making cars, that's where 15.3 percent got jobs. Only one-third of the 9.6 percent of students who said they were shooting for work in media, entertainment and sports said they landed in those fields.

The employment situation this year remains difficult overall, the Ministry of Human Resources and Social Security said in April. There's a long-term shortage of skilled workers in some newer, upgraded sectors, while older, lower-skilled workers and fresh college graduates are finding it hard to get hired, a ministry spokesman said at a recent briefing.

Still, China created 3.34 million jobs in the first quarter, on pace to exceed the government's 11 million target for this year.

But for grads, the gap between their expected and actual wages is widening. Women are worse off, with average monthly pay 750 yuan less than men, according to Zhaopin's survey. For graduates who rejected job offers, compensation falling short of expectations was the top reason cited, by 35.5 percent of those surveyed.

"More than three quarters of graduates are paid less than their expectations," Zhaopin's report said. "Generally, they've taken a dim view of job hunting this year."

To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net, Kevin Hamlin in Beijing at khamlin@bloomberg.net.

To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Jeff Kearns

With assistance from Yinan Zhao, Kevin Hamlin