Outlays surged to 37.2 billion yuan (US$5.45 billion), according to the ministry of human resources and social security – 3.6 times the year-earlier figure and the highest since monthly data began being kept in 2013.
Receipts into the system increased 20%, thanks in part to the influx of contributors. But the massive payouts have resulted in a deficit of 22.7 billion yuan for the month.
The shortfall is the biggest since March 2020, when the pandemic first hit the Chinese economy. The first five months of the year collectively had a surplus, but that changed into a 15.6 billion yuan deficit for the first half as a whole.
The souring job market stemmed from China’s zero-Covid policy response to the omicron epidemic earlier this year. The unemployment insurance outlays were used to pay the growing number of beneficiaries and to safeguard the remaining jobs.
Businesses that keep workers on the payroll receive a partial refund on their unemployment insurance contributions from the previous year. This year, the government increased the size of the refunds.
Large corporations receive a 50% refund, up from 30%. Small and midsize businesses stand to receive a maximum refund of 90%, up from 60%. During the first half, 5.84 million companies received 33.1 billion yuan in refunds, according to the human resources ministry.
The balance of the unemployment insurance fund declined for three consecutive years from 2019 on the Sino-American trade war and the pandemic. It amounted to 331.3 billion yuan at the end of 2021 – down 43% from the peak in 2018.
At the same time, the growing ranks of college graduates have meant stiffer competition for jobs. The youth unemployment rate hit record highs for four consecutive months through July. To resolve this structural issue, unemployment insurance funds have also been used to bankroll vocational training.
“There’s a strong possibility that (the unemployment insurance system) will end up running a deficit for the full year in 2022,” said Takamoto Suzuki, head of economic research for Marubeni (China).
“If the (unemployment insurance) fund balance persistently continues to decrease, it will become more difficult to engage in programmes that citizens will welcome, such as extending the duration of insurance benefits or expanding eligibility for payments,” Suzuki said.