China’s top private firms cut 300,000 jobs despite revenue growth in 2023: Report

China’s top private firms cut jobs

China’s leading private companies shed over 300,000 jobs in 2023, even as they reported modest financial growth, according to a recent report from the All-China Federation of Industry and Commerce. The report indicates that 500 prominent private enterprises employed 10.66 million people last year, reflecting a decline of 314,600 jobs compared to 2022.

This significant job reduction has raised alarms about the private sector’s vulnerability amid a slowing domestic economy. Analysts have called for increased government support, particularly following the introduction of a new draft law aimed at revitalizing the private economy, announced by Beijing last Thursday.

“The decline in employment, despite rising revenues, underscores the uncertainty faced by firms,” stated Harry Murphy Cruise, an economist at Moody’s Analytics, as reported by The South China Morning Post. He noted that factors such as increased automation and efficiency initiatives, especially in competitive sectors like manufacturing, are contributing to the job cuts.

Manufacturing remains the dominant sector among China’s private firms, with 66.4% (332) of the top 500 operating in this area, an increase from 322 the previous year. This shift towards automation and advanced production methods is part of China’s broader strategy to modernize its economy in response to global competition and labor shortages. More than 60% of these firms have digitized their operations, according to the federation’s findings.

Despite a nearly 3% rise in net profits for the top 500 private firms to 1.69 trillion yuan ($239 billion), the job losses represent the largest decrease in the private sector workforce since 2011. Key sectors, including real estate, internet services, automotive, and finance, have seen widespread layoffs in the past year. “Investment in areas outside manufacturing is stagnant, and firms are reducing hiring. This trend is unlikely to change soon,” Cruise added, referencing the low non-manufacturing hiring intentions recorded in September’s purchasing managers’ index.

Policy uncertainty and stringent regulations have further complicated the landscape for private enterprises. However, Luo Wen, head of the State Administration for Market Regulation, recently committed to lowering institutional costs for businesses and ensuring equal treatment for private firms, vowing to eliminate discriminatory policies based on ownership.

China’s private sector is vital to the economy, contributing over half of the nation’s tax revenue, more than 60% of its gross domestic product, and employing over 80% of urban workers. Many of these businesses are small and medium-sized enterprises that remain vulnerable to both domestic and external pressures.

While the government has sought feedback on the new draft law intended to bolster the private economy, analysts remain skeptical about its efficacy. “The proposed legislation appears to focus primarily on private tech firms, leaving other sectors, such as services, inadequately supported,” cautioned Alicia Garcia-Herrero, an economist at corporate and investment bank Natixis.

As of Monday, China’s Ministry of Justice has received over 1,000 suggestions regarding the draft law, which is open for public comment until November 8. “Firms have been burned before by unfulfilled promises,” Cruise remarked. However, he acknowledged that this new legislation seems more likely to be enacted compared to previous efforts, especially given the heightened urgency to stimulate private sector activity amid rising tariffs and trade barriers.

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