China laying off millions: Why it will be a huge test of political tenacity

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Updated: Apr 30, 2016 10:00 AM

The massive shift from equality and egalitarianism to income inequality and unemployment considerably gnaw the heart of “Zhongguo Meng”—the “China dream”

China has come full circle, where the worker has taken a backseat as an itinerant cog in the wheel of modernisation, which causes a fundamental ideological and moral problematic with “socialism with Chinese characteristics”China has come full circle, where the worker has taken a backseat as an itinerant cog in the wheel of modernisation, which causes a fundamental ideological and moral problematic with “socialism with Chinese characteristics”.

India’s inexplicable volte-face—issuing and then revoking the visa of Uyghur activist Dolkun Isa, disabling his travel to Dharamshala for a conference—merits an official explanation. Indeed, many observers believe that Beijing may have arm-twisted India. However, Beijing may find less success in such tactics on the home turf. China is set to lay-off as many as 1.8 million coal and steel workers (1.3 million in the coal sector; 500,000 in steel) in its rust belt. According to Hong Kong-based China Labour Bulletin, there were 500 incidents in January, 202 incidents in February and 171 incidents in March 2016. More than an economic problem, it is the Party’s pressing political challenge.

It is largely the rust belt of China—the industrial, mining and coal base southwest of Beijing to the northeast (historic Manchuria) to where the river Amur flows into China—that is feeling the funk of China’s economic slowdown; a region having a population of 200 million (roughly the same as Uttar Pradesh). Lay-offs are estimated to rise to 6 million in the coming years. It is known that China failed to meet its growth target of 7% in 2015 and grew at 6.9%, the first time in 25 years. Subsequently, it has lowered its economic growth target for 2016 to between 6.5% and 7%, what is called the “new normal”. China’s slowdown is partly attributable to its reduced emphasis on investment-driven growth, recent slump in exports, insufficient domestic consumption to overcapacity in loss-making state-owned enterprises (SOEs).

It is now the disquiet of the steel and coal factories, which employ as many as 12 million workers. China is the world’s largest producer and consumer of steel, the demand and price of which has hit a 10-year low. It is also the world’s largest producer and consumer of coal (and the largest carbon emitter; India ranks behind China, the US and EU as the fourth largest emitter). Coal consumption has fallen 3.7% in 2015 (compared to 2014). Though China is harnessing non-fossil fuels (solar and wind), continued air pollution and overcapacity in industries have turned into critical problems.

In September 2015, President Xi Jinping and Premier Li Keqiang indicated the intent of the administration to tackle flailing, unprofitable SOEs, many of them in the energy sector, with an overall “guideline to deepen reforms of SOEs”. Resulting was a “supply-side structural reform”, which is “more Reagan than Marx”, directly impacting state-owned steel and coal industries by calling for a reduction of 10% steel capacity and 15% coal capacity, to be followed by addressing overcapacity in cement, glass-making and ship-building industries.

At the administrative level, the “guideline” indicates that many of the piled-up problems of SOEs will also be addressed. Part of China’s larger woes is the unsatisfactory performance of SOEs, which, like India’s public sector enterprises, were designed to occupy “commanding heights”. As agents of the state, SOEs were not just business entities, but with political and social responsibilities, such as control of the core sector, employment generation and price control. The state share of employment, at 2010 figures, stood high, at 57%, though recent figures suggest that it is considerably lower.

China’s State Statistical Bureau does not publish the names of all SOEs, nor precise numbers. Many non-state firms are manifestly state-controlled. Economists have indicated their malaise—large monopolies, unprofitable and inefficiently managed, sustained by government finances, making less profit than private or foreign invested firms. SOE managements are often likened to as “rich monks in poor temples” and private entrepreneurs complain that their entrepreneurial necks are squeezed so that money can be poured into flailing SOEs. In other words, “the state advances, the private sector retreats”.

Largely as a response, the new “guideline” says that SOEs are to be classified as either commercial or public service, kept free of undue interference by corporate governance with a dual track management system of party cadre and professional managers, and also a marked shift from asset management to capital management. While the latter has been successful in Singapore, where companies such as Temasek have led the way, this model, called the “Singapore model”, has been successful because of various factors. Singaporean bureaucrats are highly paid, have clean hands and are efficient. The efficacy of aping the “Singapore model” in China is yet to be tested.

In March 2016, even as the 13th Five Year Plan (2016-2020) was being considered by the National People’s Congress (akin to India’s Lok Sabha, but only in name) and the Chinese People’s Political Consultative Conference (akin to the Rajya Sabha, again in name)—which aims at creating 10 million new urban jobs, aspires to keep urban unemployment rate below 4.5% and replaces business tax with a value-added tax—the proceedings were usurped by the focus on protesting coal miners in Shuangyashan city, Heilongjiang province. Workers were up in arms against non-payment of wages by Longmay Group, the largest coal-mining group in province. While Lu Hao, the governor of the province, claimed that the workers had been paid, workers marched with banners that said “we must live, we must eat”. Protests have spread to places such as Qian’an in Hebei province (adjoining Beijing), which is the country’s largest steel base, colloquially called China’s Ukraine.

Why should China care? After all, during 1995-2000, almost 48 million workers lost their jobs, without a significant dent to the Party when reorganisation of SOEs (keeping the big, letting go of the small) was fashioned by the then economic czar, Premier Zhu Rongji. But then, those were times of rapid economic growth, which could absorb such surpluses.

But now, the spate of protests are a regular feature—most escape media focus, in India at least. At a time when economic growth is slowing down, 15 million enter China’s labour market each year, and this has the potential for social upheaval.

Despite the country’s lack of strong trade unionism (there is, however, the All-China Federation of Trade Unions) and the marked fragmentation of the working class that scholars have noted, there is room for “collective action” in the form of lawsuits, appeals, protests, demonstrations, traffic blockades including the Chinese version of “gherao” of public officials and offices.

Though many laid-off workers prefer to remain quiet and try to find other jobs, others articulate economic demands (unpaid wages, subsidies, pensions, retirement insurance) as opposed to political demands. While they raise and praise the Party banner, they also demand “food to eat”. Managing this tricky lot in the past turned the local governments into “fire brigades”. Today, sequential lay-offs are considered a solution. Yet lay-offs call into question the legitimacy of the Party, which faces no election and rests solely on economic plaudits.

SOEs constituted China’s “iron rice-bowl” with the work-unit (danwei) guaranteeing employment and cradle-to-grave welfare. But welfare has become “socialised” with pay-go (pay-as-you-go) and insurance funded with contributions from the employer, the state and the employee. Welfare obligations have increasingly “hollowed out” with social undertakings—as opposed to the Party—taking the lead.

China has thus come full circle, where the worker—the bastion and vanguard of revolution, valourised as the “elder brother”—has taken a backseat as an itinerant cog in the wheel of modernisation, which causes a fundamental ideological and moral problematic with “socialism with Chinese characteristics”.

Thus, so-called incidents—180,000 at last count in 2010 (statistics have since gone missing)—are presumably growing. Protesters have occasionally turned nasty, fighting police and smashing cars. There have been episodic (and isolated) instances of unemployed migrants blowing themselves up in buses such as in Hangzhou and Guangzhou, and a dangerous and tragic spate of school attacks in central and southern China in the last two years.

To China’s credit, a $15.3-billion fund has been instituted to resettle and retrain the laid-off workers, but will this be enough? In the past, the marked failure of Reemployment Service Centres (established in 1996) to provide laid-off workers subsidies and job opportunities has been well-chronicled, giving largely just moral and spiritual support.
Thus, China’s own tribulations from the massive shift from equality and egalitarianism to income inequality and unemployment considerably gnaw the heart of “Zhongguo Meng”—the “China dream”.

The author is a Singapore based sinologist and adjunct fellow at the Institute of Chinese Studies, New Delhi. She is the author of Finding India in China

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