the times | Wednesday June 8 2022 39

CommentBusiness

Aviation will take two

years to get back to

pre-pandemic levels

A

nalysts in China can’t say

this out loud or in writing,

but this year may be the

one in which it came to

be recognised that

China’s economic miracle is over.

Since February, the closely managed

Chinese yuan has fallen by about

6 per cent against the US dollar, its

fastest decline for a decade. From

the time of the Russian invasion of

Ukraine through to late May, foreign

investors, who poured money into

Chinese equities and bonds in 2020-

21, withdrew a record amount.

While Covid lockdowns were a

factor, the effects of China’s support

for Russia and of its Covid

management will linger for longer

than the short-term bounce driven

by the lifting of restrictions in

Shanghai and Beijing.

GDP may have contracted in the

second quarter by between 5 per

cent to 10 per cent on an annualised

basis, even allowing for a better

June. Freight and passenger traffic in

the year to May were down by 39 per

cent. Property sales at the 100

largest developers were down by

nearly 50 per cent. Sales of cars,

construction equipment and

consumer goods dropped like a stone

and the leisure, hospitality and other

services sectors contracted. The

officially measured unemployment

rate rose to 6.7 per cent, as high as it

was at the start of Covid in 2020 but

now, as then, a large underestimate.

Underlining the severity of the

situation, Li Keqiang, the country’s

premier, held a teleconference on

May 25 with more than 100,000

officials across the country to

emphasise the measures that the

government and the central bank

had introduced to stabilise the

economy. He exhorted them to

implement these immediately, and in

good time for the important 20th

Communist Party Congress later in

the year.

Looking ahead, and subject to

renewed outbreaks of Covid, which

doubtless would trigger the same

zero-Covid policy response, we

should expect the economy to revive

a bit. Lower interest and mortgage

rates, plentiful liquidity, more

infrastructure borrowing and

spending programmes, tax breaks

and other help for firms, as well as

an easing of restrictions on property

developers’ balance sheets are all

likely to give the economy a lift. Yet,

absent statistical manicuring, the

official 5.5 per cent growth target for

2022 is out of reach and the

underlying growth rate this year will

be barely more than 2.5 per cent.

Covid-related factors clearly are

shaping this year’s economy, but it

was in poor shape even before. It is

experiencing an array of structural

headwinds that are weighing heavily

on growth and employment. These

comprise still-rising debt levels and

debt-serving burdens, rapid ageing

and labour force decline, high

income inequality, low productivity

and signs that the property sector,

accounting for about a quarter of

annual GDP, is set to stagnate for

the first time. Meanwhile, China’s

private sector and entrepreneurs are

being coerced by regulations, laws

and arbitrary measures into

pursuing party goals and the

“orderly expansion of capital”.

The rest of the world has not yet

integrated the idea of the end of

China’s growth miracle or that its

trend growth in future is perhaps no

more than 3 per cent. Policymakers

can only determine if this happens

with more or less disruption.

Commentators may still quip that

China will overtake the United

States, but the numbers suggest it

might never happen. In the

meantime, China’s more subdued

outlook suggests that eventually

commodity prices will roll over and

that global inflation will be pulled

one way by higher cost

regionalisation of supply chains and

in the other by weaker Chinese

demand and a cheaper yuan. Formal

decoupling will increase as China

and other countries pursue national

security agendas, while foreign firms

will become more responsive to the

concerns of their home governments

and shareholders. Engagement has

been the lifeblood of a rising China.

Disengagement now looms.

David Smith

George Magnus

There is a

restaurant in west

Wales I know that is

just reopening after

weeks of being

closed because it could not get staff. It

has missed the first few weeks of the

tourist season, but is one of the lucky

ones. Across the country, restaurants

and cafés are being forced to close or

to reduce opening hours because of

staff shortages. The hospitality

industry says there are 400,000 job

vacancies in the sector, which is

higher than the official figure of

171,000, but either number is

enormous.

We know why these problems have

arisen. It is the result of a shrinking

workforce, with lower levels of

employment and rising economic

inactivity among both younger people

aged 18 to 24 and the over-50s. There

is also the additional problem of a

drop of 210,000 in European Union

nationals employed in Britain over

the past two years.

That is the impact of a smaller

workforce. The employment rate

among EU nationals, at 82.9 per cent,

is fractionally higher than it was two

years ago; the employment rate

among UK nationals, of 75.6 per cent,

is lower than it was, the result of a

drop in employment of more than

425,000 among them.

Yet it would be wrong to think that

these post-pandemic strains and

shortages are exclusive to Britain. A

few days ago, I had to go to

Amsterdam on a day trip and, fearful

of disruption and cancelled flights, I

wondered if I would get back. There

was chaos, but the worst of it was at

Schiphol, which vies with Charles De

Gaulle in Paris as Europe’s busiest

airport for passengers. Indeed, chaos

at Schiphol, driven by labour

shortages in an economy

with an even tighter

labour market than

that of the UK and a

3.3 per cent

unemployment

rate, was the talk

of the town. So

was working from

home, with one or

two of those I

spoke to echoing

some British

counterparts in being desperate to get

more people back into the office but

encountering resistance.

It would be easy to see these

difficulties as mere evidence of post-

pandemic teething troubles, but there

is more to it than that. What we used

to call hard-to-fill jobs have become

harder to fill. The time when people

were so desperate to work that they

had to accept zero-hours contracts

and were on tap at their employer’s

convenience also may be over.

In the jobs market there is now a

clear division, almost an apartheid,

between those who can and those

who can never work from home.

Working from home — involving at

least hybrid working — is now a

permanent condition for almost

40 per cent of people, according to

the Office for National Statistics. The

post-pandemic rush to return to the

office when restrictions were lifted

barely happened and there is

tentative evidence that it has gone

into reverse.

For some sectors of the economy,

including hospitality but also others,

the return to normality has not

happened. The latest official

estimates show that consumer-facing

services are at 6.3 per cent below pre-

pandemic levels, a shortfall that is

developing into a permanent hit.

Experts say aviation in Europe will

take another two years to get back to

pre-pandemic levels, but even that is

dependent on there being enough

people to take on the dull and

repetitive jobs working unsocial hours

in airport security, passport control

and baggage-handling.

Not only did the pandemic bring

forward the working-from-home

revolution, it also gave many people

an opportunity to try something else

in a way they would not have

done in normal

circumstances. That

includes workers

who were

furloughed by

their employer. It

gave them a

chance of

freedom. For

older workers,

with nearly

three million

over-50s

furloughed while

the scheme was

running, the pandemic

provided a chance to

reconsider their lives. Being on

furlough convinced some that

retirement might not be such a bad

thing. It may have provided a smooth

path towards it.

I have written on a couple of

occasions here about the four-day-

week movement, which, like working

from home, creates labour market

“haves” and “have-nots”. Some

employers will offer four-day weeks

and some jobs lend themselves to it.

For others, it is not an option.

While some would say that four-

day weeks have been bypassed by

working from home, in which it is

sometimes said that workers operate

on a TWT — Tuesday, Wednesday,

Thursday — schedule that is not their

contractual obligation. This week 70

firms employing 3,300 people in all

began a six-month four-day week

pilot scheme, with no loss of pay for

employees. If it works, it could be a

powerful recruitment tool.

Surely, despite these developments,

economic reality including the cost-

of-living crisis will bite and force

some back into work, including into

those hard-to-fill jobs? But once older

workers have chosen retirement, it

may be hard to get them back. There

has been a substantial increase in

inactivity owing to long-term sickness

and Long Covid may be affecting as

many as two million people.

Reduced employment among

young people, some of which reflects

full-time students who traditionally

hold down part-time jobs, may also be

a longer-term change. In addition,

more than 600,000 of the

economically inactive in the 16-to-24

age bracket are not in full-time

education. The EU nationals who

have left will not be coming back.

These are not teething troubles. We

have taken the availability of workers

for granted and for too long

assumed that an invisible hand

ensures there are enough people for

the jobs that have to be filled. That is

not the case now, and may not be for

some time. For some sectors,

chronic recruitment difficulties will

come with the territory. They will

damage or destroy

many businesses,

and they will

damage the

economy.

‘‘

’’

David Smith is Economics Editor of

The Sunday Times

[email protected]

George Magnus is a research associate

at Oxford University’s China Centre

and at SOAS and is the author of Red

Flags: why Xi’s China is in Jeopardy

China’s growth miracle

increasingly looks as if

it’s coming to an end

‘The private sector

and entrepreneurs are

being coerced into

pursuing party goals’

Labour shortages and home working

will permanently reshape the economy

o

omy

a

done in nor

circumst

includ

who

fur

th

ga

ch

fr

o

w

thr

ove

ffurlo

ttthe sch

running,

provided a c