With Protests on the Rise, State Sector Facing Layoffs

Amid an economic downturn and a plan to streamline the state-owned sector, the Chinese government announced cuts in numerous industries that would result in up to six million layoffs in the next two to three years. Notably, the action will target “zombie” and coal plants that are running up a debt; in order to stave off social unrest as workers lose their jobs, the government has allocated 150 billion yuan ($23 billion) to cover in those two industries alone, according to a report by Benjamin Kang Lim, Matthew Miller, and David Stanway at Reuters:

The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said.

[…] The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40 percent of the country’s industrial output and nearly half of its bank lending.

It is China’s most significant nationwide retrenchment since the restructuring of from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds.

On Monday, Yin Weimin, the minister for human resources and social security, said China expects to lay off 1.8 million workers in the coal and steel industries, but he did not give a timeframe. [Source]

One of the areas hardest hit is China’s northeast, the center for heavy industry. Bloomberg reports on the decline of a steel mill in Tonghua, Jilin, which was beset by protests in 2009 after plans were announced to sell the state-owned mill to a private company. Up to 30,000 workers joined those protests, which turned violent and resulted in the murder of a mill executive. The government subsequently halted the sale, but Tonghua’s lingering problems provide a warning of what could happen on a larger scale when mass layoffs are implemented. From the Bloomberg report:

This is the city of Tonghua in China’s rustbelt, where a desperate handful of steelworkers has gathered each week outside the management office of their mill in freezing temperatures to demand months of wages they say they’re owed. The answer, according to interviews with workers and residents, is always the same: there is no money.

This is the last vestige of protests that once drew thousands, and which, one fateful day nearly seven years ago, ended with a manager being beaten to death.

Since then, the city’s once-vaunted state-run steel mills have slipped inexorably into decline, weighed down by slumping global markets, a changing economy, and the burden of costs and responsibilities to the people of the town they fostered.

Tonghua’s story is repeated across the country, where state-owned enterprises that were the bedrock of China’s industrial development have become its biggest burdens. Typically overstaffed, inefficient and heavily indebted, they offer President Xi Jinping a stark warning of what the country could face if the millions of workers who depend on these lumbering corporations should get thrown out of work with nothing to fall back on.

Uprisings have started from less in China. [Source]

Simon Denyer of The Washington Post reminds us of the history of worker uprisings in China by visiting Anyuan, Jiangxi, the scene of a major miner strike led by Mao Zedong in 1922. Today, miners there are protesting layoffs and low wages at their state-owned mine:

But the miners in Anyuan and other districts of Pingxiang are already hurting. The local state-owned mining company has scaled back production, laid off workers and told others to stay home — with dramatically reduced pay of just 470 yuan ($70) a month.

About 150 miners got together Monday morning to complain to the company, gathering at a crossroads and temporarily blocking traffic, according to the Communist Party propaganda department of the Pingxiang Mining Group.

Up to 1,000 workers from three mines marched through the streets Tuesday with banners reading “Workers want to survive, workers need to eat,” according to social-media posts and witnesses.

“How do you survive on 470 yuan?” said one 30-year-old worker contacted by telephone who spoke on the condition of anonymity for fear of reprisals. “My parents and grandparents worked at the mine. The workers built the mine with their hands. It is where Mao Zedong led the Great Strike, and that’s how the Communist Party rose — and now this?” [Source]

In Xinjiang, cutbacks in the steel industry are expected to hit especially hard, as the government has been investing significant money in development there as a way to increase employment and stimulate growth. From Reuters:

The decline in the fortunes of Xinjiang’s steel sector highlights the challenge Chinese policy makers face ensuring job cuts do not strain social cohesion or undermine stability.

[…] Xinjiang is particularly vulnerable given its relatively sparse population and limited export opportunities, even with China’s ambition to create a new Silk road and economic belt stretching from Western China to Central Asia and Europe.

“Xinjiang’s location is a big problem. Its internal demand hasn’t picked up sufficiently to match the expanded capacity,” said Jiang Feitao, a policy researcher at the China Academy of Social Sciences, a state think tank.

[…] “Any time there is a decline in employment it will have some kind of social impact, even if it’s the case that not very many people lose their jobs, because it will mean diminished prospects for future employment,” said Barry Sautman, an expert on China’s ethnic politics at the Hong Kong University of Science and Technology. [Source]

In recent years, protests and strikes have been on the rise throughout China, at private enterprises as well as state-owned ones. In southern China, where textile and electronic factories predominate, layoffs have increased as factories relocate out of the country. From Denyer at The Washington Post:

“There is a growing sense of insecurity among workers, particularly in Guangdong,” said Jonathan Isaacs, a labor specialist and partner at Baker and McKenzie, a law firm in Hong Kong. “A lot of factories have shut down, relocated to cheaper areas or implemented mass layoffs.”

Many of the underlying problems predate the last quarter, according to Albert Park, director of the Institute for Emerging Market Studies at the Hong Kong University of Science and Technology.

A survey by HKUST and Beijing’s Tsinghua University of nearly 600 factories in Guangdong conducted last August found that, although the profits picture was mixed, companies had trimmed their workforce by 3.7 percent in 2014. Labor-intensive sectors were the hardest hit, with employment in textiles falling more than 10 percent.

The main problem firms cited was rising wages: Guangdong is, in a sense, a victim of its own success, and now many factory owners are eyeing cheaper locations in Southeast Asia. [Source]

As worker protests increase, the government has waged an “unprecedented” crackdown on labor activists and independent labor organizations, detaining seven activists in southern China in December. Three are still detained, including He Xiaobo and Zeng Feiyang, director of the Panyu Workers’ Center, who has been charged with “gathering a crowd to disturb social order.” Zeng’s supporters, however, say that the charges and other accusations against him are false. Jane Li and Steve Mollman at Quartz profile Zeng and his work:

The charges against Zeng were particularly harsh. Chinese authorities have been using smear campaigns—sometimes involving charges of sexual misconduct—to take down those who displease them. Often it forces them to make “confessions” on national TV. In Zeng’s case, they charged him with fraud, adultery, embezzlement (including “witholding compensation for workers from the factory” and putting it in his own bank account), and of sending “vulgar messages” and sex videos to women online.

In interviews conducted last month by China Labour Bulletin, a Hong Kong-based watchdog, various workers familiar with Zeng vouched for him and expressed skepticism about the charges.

“I don’t think what Xinhua said is correct, as Zeng never took any of our money,” said a former employee of a jewelry factory in Foshan, about a 45-minute drive from Guangzhou. “I’ve met him once, and he told us we should have legitimate demands, which means we cannot do illegal things such as blocking roads. We cannot defend our justified rights till we workers unite together, he said.” [Source]

Many worker grievances stem from employers’ poor handling of layoffs or factory closures. In contrast, China Labour Bulletin recounts one story of a factory that was closed without incident, simply because the owner followed the law in guaranteeing fair compensation for employees:

Simply by obeying the law and paying the employees what they were owed, Stella was able to do what hundreds of other business owners in the Pearl River Delta region had failed to do; closedown a well-established factory with minimal fuss.

The Xing Ang closure shows that it is not China’s per se that gives rise to worker protests, rather it is the response of employers to that slowdown and the way they treat their employees in difficult times that largely determines worker actions. [Source]