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China comes full circle with talk of mass lay-offs

  • Author:naky
  • Source:www.diecastingpartsupplier.com
  • Release on:2016-03-10
China’s annual parliamentary session convenes this week amid a sombre mood that recalls the late 1990s: an era of economic ructions, rising debt, currency jitters and talk of mass lay-offs.

Zhu Rongji, the economic tsar who helped steer the economy through that transformative period, was bold. On his watch 30m were laid off, hundreds of state-owned enterprises privatised and thousands more consigned to history.

The National People’s Congress, which kicks off this weekend, will see whether China’s leaders are up to the task this time. Premier Li Keqiang has prepared the ground: overcapacity has become the mantra in recent months and in the past few days the Communist party has openly started to discuss lay-offs, up to 6m by some estimates.

Fifteen years later, China has come full circle. The SOEs that survived the purge of the 1990s were consolidated and flooded with investment. More than a decade of accelerated economic growth followed, but the same problems have resurfaced as the economy slows.

In a sign lay-offs are no longer completely taboo, Beijing recently tweaked the way it measures unemployment. The official figure has been allowed to creep towards 5 per cent after decades of barely budging from 4 per cent.

Surveys indicate that real unemployment reached well over 20 per cent in many Chinese cities in the late 1990s.
This time the labour ministry estimates 1.8m workers could lose jobs, while other estimates go as high as 6m. Steel lobbyists say up to 400,000 jobs could be lost, while just one state-owned coal producer, Longmay, said last autumn it would let 100,000 workers go.

Talk of lay-offs may simply allow local governments to formalise the status of workers who have in effect been unemployed for months, with pay in arrears as mines and mills halt production.
“The growth of the services industry will make up for the job losses.”

The period from 1998 to 2001 saw mass worker demonstrations that forced China finally to implement a rudimentary social safety net, but corruption and the sorry state of many SOEs meant many former state workers lack adequate health coverage or pensions. The problem was particularly acute in the north-eastern rust belt, which is again one of the regions hardest hit in the current slowdown.

According to one steel industry insider privy to plans for the fund, Beijing will offer subsidies to SOEs willing to close some of their inefficient production lines. For all the brave talk of job losses and capacity cuts, it is not clear it is truly prepared to let companies fail.