Lay­offs rat­tle China’s work­force

The num­ber of protests dou­bles, and most in­dus­tries are af­fected “Com­pa­nies have been de­lay­ing wages and cut­ting the work­week”

Bloomberg Businessweek (Asia) - - CONTENTS - −Dex­ter Roberts

While most of the world has fix­ated on the plung­ing Shang­hai and Shen­zhen stock ex­changes and Bei­jing’s mis­steps man­ag­ing the cur­rency, China’s la­bor mar­ket has be­come in­creas­ingly frag­ile. As wage ar­rears and lay­offs

grow, un­rest in fac­to­ries and on con­struc­tion sites is spread­ing.

Worker protests and demon­stra­tions dou­bled last year, to 2,774, with De­cem­ber’s to­tal of more than 400 such in­ci­dents, set­ting a monthly record. The protests come as China’s slower growth crimps prof­its and con­cerns about poor pol­i­cy­mak­ing sap in­vestor con­fi­dence. “The in­crease in strikes and protests be­gan last Au­gust around the time of the yuan de­val­u­a­tion and sub­se­quent stock mar­ket crash and con­tin­ued to build dur­ing the fi­nal quar­ter of the year, as the econ­omy has showed lit­tle sign of im­prove­ment,” says Ge­of­frey Crothall, com­mu­ni­ca­tions di­rec­tor at the Hong Kong-based work­ers’ ad­vo­cacy or­ga­ni­za­tion China Labour Bulletin.

That’s wor­ri­some for China’s Com­mu­nist Party, which came to power in 1949 claim­ing to rep­re­sent the work­ing masses. In a sign of its ner­vous­ness, Bei­jing on Jan. 8 for­mally ar­rested four la­bor or­ga­niz­ers in Guang­dong, amid a broad crack­down on rights ac­tivists. “The sit­u­a­tion is not so good th­ese days,” Zhang Zhiru, a Shen­zhen-based la­bor cam­paigner, said in a text mes­sage. “It is not con­ve­nient to ac­cept in­ter­views from the for­eign me­dia.”

The govern­ment’s of­fi­cial un­em­ploy­ment rate for ur­ban work­ers is fic­tion: It’s re­mained largely un­changed at around 4 per­cent even when China’s econ­omy has dipped sig­nif­i­cantly in the past, as dur­ing the global fi­nan­cial cri­sis. Still, most out­side ob­servers es­ti­mate the real fig­ure may be a cou­ple of per­cent­age points higher (the Con­fer­ence Board’s China Cen­ter for Eco­nom­ics and Busi­ness puts it at about 6 per­cent). Wage growth has been out­pac­ing gross do­mes­tic prod­uct growth in re­cent years, and 10.7 mil­lion ur­ban jobs were cre­ated in the first nine months of last year, sur­pass­ing the of­fi­cial full-year tar­get of 10 mil­lion, ac­cord­ing to the Min­istry of Hu­man Re­sources and So­cial Se­cu­rity.

Cash-pressed com­pa­nies in con­struc­tion, man­u­fac­tur­ing, min­ing, and ser­vices are de­lay­ing pay­ing their work­ers, which is the No. 1 cause of la­bor strife and a likely pre­cur­sor to staff re­duc­tions, says Crothall. “Com­pa­nies have been de­lay­ing wages and cut­ting the work­week. They have tried th­ese dif­fer­ent mea­sures to keep peo­ple em­ployed. But now we ex­pect greater out­right lay­offs,” says Bei­jing-based An­drew Polk, se­nior econ­o­mist at the Con­fer­ence Board’s China Cen­ter. “This year I ex­pect it will be even more dif­fi­cult to find work,” says one 30-year-old toy fac­tory worker who hails from Hu­nan prov­ince. (He asked that his name not be used, cit­ing the sen­si­tiv­ity of the la­bor sit­u­a­tion.) “I am not sat­is­fied with my salary. But ev­ery­where’s pretty much the same.”

Ac­cord­ing to Chi­nese sur­veys of pur­chas­ing man­agers, com­pa­nies have been re­duc­ing staff for at least the past 11 months. A sep­a­rate pri­vate poll by Markit Eco­nom­ics and Caixin, a fi­nan­cial in­for­ma­tion me­dia com­pany, is sim­i­larly grim, with ser­vices show­ing their worst over­all per­for­mance in 17 months in De­cem­ber.

Lay­offs have been par­tic­u­larly high among ex­port-ori­ented man­u­fac­tur­ers in south­ern China’s Pearl River Delta. A sur­vey last Au­gust of 570 com­pa­nies

“I am not sat­is­fied with my salary. But ev­ery­where’s pretty much the same.” ——anony­mous 30-year-old Chi­nese toy fac­tory em­ployee

in Guang­dong by the Hong Kong Univer­sity of Sci­ence and Tech­nol­ogy and Bei­jing’s Ts­inghua Univer­sity showed com­pa­nies had re­duced their work­forces by an av­er­age of 3.5 per­cent from 2013 to 2014, while low-skilled work­ers had been cut by 5 per­cent, says Al­bert Park, di­rec­tor of the HKUST’s In­sti­tute for Emerg­ing Mar­ket Stud­ies. Monthly wages for work­ers grew more than 10 per­cent an­nu­ally in 2013 and 2014. They grew less than 2 per­cent through the first half of last year.

Multi­na­tion­als op­er­at­ing in China’s big cities are try­ing to con­trol la­bor costs. About one-third of such com­pa­nies in an Oc­to­ber sur­vey said they planned to add staff in 2016. That was the low­est rate recorded since early 2009, dur­ing the global fi­nan­cial cri­sis, says El­ley Cao, a prin­ci­pal at hu­man re­sources con­sul­tants Mercer in Shang­hai. For­eign com­pa­nies said they plan to raise salaries on av­er­age by 6.9 per­cent this year, the small­est in­crease since 2009. Says Cao: “This will be the trend for the next few years.”

Lay­offs in China’s re­source and heavy in­dus­tries, suf­fer­ing from over­ca­pac­ity and red ink, are ex­pected to be par­tic­u­larly large. Of­fi­cials have said cut­ting ex­cess pro­duc­tion is a pri­or­ity, in part to help re­duce haz­ardous smog. “China should put un­yield­ing ef­fort into re­struc­tur­ing by elim­i­nat­ing out­dated ca­pac­ity and for­bid­ding the con­struc­tion of new ca­pac­ity,” Premier Li Ke­qiang said on Jan. 4 in Shanxi, one of the top coal-pro­duc­ing provinces, the of­fi­cial Xin­hua News Agency re­ported. The govern­ment should take “a com­bi­na­tion of mea­sures” to deal with over­ca­pac­ity and en­sure the “well-be­ing of laid-off work­ers,” Li said, with­out spec­i­fy­ing how.

The down­siz­ing in heavy in­dus­try

and min­ing has al­ready be­gun. The coal in­dus­try has shed 890,000 jobs since 2013, equal to all the new jobs in coal cre­ated “in the stim­u­lus­driven boom since 2007,” writes Er­nan Cui, a Bei­jing-based an­a­lyst at China re­searcher Gavekal Drago­nomics, in a Jan. 6 note. The steel in­dus­try, also suf­fer­ing from over­ca­pac­ity, has dropped 550,000 work­ers over the same pe­riod. “It is not im­plau­si­ble that th­ese two sec­tors could lay off 1 mil­lion work­ers in 2016,” Cui writes.

Even as the ser­vice in­dus­try grows, it’s fail­ing to cre­ate many higher-end, bet­ter-paid jobs, like those in fi­nance. In­stead, says Park, it’s gen­er­at­ing po­si­tions such as waiters, cooks, and dish­wash­ers in restau­rants. China Labour Bulletin’s Crothall says, “The jobs that are be­com­ing avail­able in the sec­tor are not nec­es­sar­ily that much bet­ter in terms of pay and con­di­tions, as for­mer fac­tory work­ers were get­ting. In­deed, they may of­ten get paid less and be work­ing longer hours.”

The bot­tom line This year is shap­ing up to be a tough one for Chi­nese la­bor, as em­ploy­ers seek to re­duce costs and pare away ex­cess ca­pac­ity.

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