Saturday 22 November 2008

The beginning of the China crisis as unemployment rises?

In this blog I have commented on numerous occasions about the possibility of social unrest in China arising as a result of the export crash and the on going global recession.

To me I felt like I was in the middle of a strange conspiracy. At last the mainstream press and more importantly China's press are beginning to acknowledge what I have been trying to point out for a while:

1. The fall in demand for Chinese goods from the US, Europe and Japan will cause huge unemployment and will not and cannot be absorbed by domestic consumption. This was never even a remote possibility given China's rates of personal saving.

2. Chinese citizens are becoming more vocal and more liable to protest. The Internet and the ability to get information out of the country means that social instability is a real concern.

There is no doubt China's government is still strong enough to quell any trouble and is not afraid to use all the resources at its disposal but at least the issue is quietly sneaking into the real world.

What I like about this article is that China's primary concern is "employment". Forget the global crisis or inflation - employment is all important. Western governments would do well to remember this when asking for favours from China.

The key is that 8% growth is not as great as it seems given China's population structure. If we fall below 7% I would be worried.

Beijing forecasts grim employment outlook [FT]

China's employment outlook is becoming "grim", say officials, as the global financial crisis triggers fresh factory closures in the export sector.

Urban unemployment has begun to rise and will increase next year, Yin Weimin, minister of human resources and social security, said on Thursday.

"Stabilising employment is the top priority for us right now," said Mr Yin, in comments reflecting growing worries about the potential threat to social stability.

"The current situation is grim, and the impact is still unfolding," he said. "Since October, our country's employment situation has been affected along with changes in international economic conditions."

China's official urban unemployment rate is 4 per cent. But this figure includes only registered urban residents. Tens of millions of rural migrants who have moved to cities to work in factories over the past decade are generally not included in unemployment data if they lose their jobs.

The national economy has been slowing gradually since the start of the year. However, the pace at which it is cooling accelerated sharply in September and October, prompting a steep drop in confidence among companies and some consumers.

Even when the economy was growing strongly, China witnessed a stream of localised protests. Recent trouble has included strikes by taxi drivers in three cities and rioting in a city in Gansu province this week.

Statements by Chinese leaders have shown that they were worried about the social impact of a sharp downturn. In an article in a Communist party magazine this month, Wen Jiabao, the premier, said: "We must be crystal clear that without a certain pace of economic growth, there will be difficulties with employment, fiscal revenues and social development . . . factors damaging social stability will grow."

Zhang Xiaojian, vice-minister of human resources and social security, said on Thursday competition for jobs among growing numbers of college graduates would intensify if the economy slumped. The authorities jast week unveiled a huge fiscal stimulus programme aimed at keeping growth at about 8 per cent a year.

The slowdown began in the housing market, spreading to related industries such as steel and cement. With Europe now in recession, and many of its other markets slowing, some economists think that Chinese exporters are about to face an extremely tough patch.

In one indication of the gathering slowdown, Japan saidits exports to the rest of Asia recorded their first decline for seven years last month, with exports to China dropping 0.9 per cent compared with the same period last year. Japanese companies have been large suppliers of components and other products to the array of factories in China that assemble goods for export.

Two provincial governments this week announced measures aimed at deterring businesses from laying off workers. Hubei and Shandong said companies trying to lay off more than 40 staff would need prior approval from the local authorities.


1 comment:

Christian said...

It would be interesting to look at the current economic downturn and consequentila social unrest in China in the context of Davies' j curve theory. Massive unrest in a country as large and as populous as China, with as few natural resources is a frightful proposition.