China’s Unemployment Swells as Exports Falter

Jobless workers wiiling to work for half pay.

China’s Unemployment Swells as Exports Falter

In his interview with BBC business editor Robert Peston, China's commerce minister Mr Chen, said that China was "heavily dependent" on the global economy."Given such a high degree of openness it is impossible for China to survive in an isolated way from the financial crisis."

The commerce minister said he expected that in the first six months of this year, the global slowdown would have a larger impact on the Chinese economy.China's economic growth was forecast to slow, but would still grow by around 8% in 2009, he said.But he saw no sign of a quick upturn in the global economy, saying: "All countries in the world are in the same boat, and we share the same destiny."

He ruled out major changes in the value of China's currency, despite pressure from the United States. The US has long been angered that China does not allow the Yuan to float freely, saying the artificially low currency makes Chinese exports unfairly cheap.Mr Chen said he did not think "for the next period of time" there would be a "remarkable change" in the value of the Yuan.

The biggest challenge facing China is not slowing growth but unemployment, which could trigger social unrest, a Chinese government minister has said. Commerce Minister Chen Deming told the BBC that when economic growth slowed "the chances of possible social unrest increase as well".

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Guangdong Province accounts for nearly a third of China’s exports, making it especially vulnerable as Western retailers sharply reduce orders to focus on selling the inventory they already have.

Electric utility use was down nearly 8 percent in December from a year ago in Guangdong and across China. Electricity is an excellent barometer of the Chinese economy because most usage is industrial, said Jing Ulrich, the chairwoman of China equities at JPMorgan Chase.

But Guangdong’s actual decline in electricity use is much greater. At least one-fifth of all electricity generated in the province until the last few months was produced by tens of thousands of diesel generators in the backyards of factories, because the provincial grid, unable to keep pace with growth, imposed severe rationing.

This winter, all rationing has been lifted and factories have unlimited access to inexpensive electricity from the grid, so the backyard generators have been shut down.

Wage demands, another barometer of economic health, have plunged. Skilled workers who used to demand up to $430 a month are eagerly accepting jobs that pay half as much, managers here said.

“They just want a job — no demands on salary,” Mr. Hubbs, the Fortunique owner, said.

China on the verge of unemployment explosion

(WSWS) -- Four years ago, the former World Bank President James Wolfensohn warned Chinese leaders that they had to address the widening social gulf between rich and poor.

"That way," he said, "unlike the French [aristocrats], you will not be taken to the guillotine on July 14."

The idea that the French Revolution could occur in contemporary China may have seemed farfetched at the time when the economy was experiencing an unprecedented boom—expanding at more than 10 percent each year.

Wolfensohn's warning can no longer be considered an exaggeration. After 30 years as a giant cheap labour platform for the world's major corporations, China cannot avoid being dragged into the greatest financial crisis since the 1930s. With the economy slowing rapidly, unemployment is set to skyrocket and social discontent will explode.

Zhou Tianyong, a researcher at the Central Party School in Beijing, warned of the consequences of growing job losses in an article in the official China Economic Times on December 4: "The redistribution of wealth through theft and robbery could dramatically increase and menaces to social stability will grow. This is extremely likely to create a reaction of mass-scale social turmoil".

Significantly, Zhou dismissed the current official urban unemployment rate of 4 percent, insisting the real figure was 12 percent this year and would rise to 14 percent in 2009. These forecasts, he said, were conservative, based on evidence that one third of small and medium firms have gone bankrupt and that large enterprises are cutting costs by displacing workers with machinery.

Zhou estimated that in China's labour intensive economy, every 1 percent fall in growth translated into the loss of 8 million jobs. GDP growth rate in the last third quarter was 9 percent, down from 11.9 percent last year. That is equivalent to the loss of 24 million jobs.

Zhou estimated that the decline of exports alone would cost about 12-20 million jobs. He pointed out that global demand for Chinese goods was unlikely to increase for a protracted period. He warned that the US could be entering a decade-long slump and that Europe and Japan were unlikely to recover before America.

Economic growth in China is widely predicted to fall .
China's underdeveloped service sector cannot absorb the unemployed. Only 32.4 percent of the workforce is employed in service industries—15-20 percent below the global average, due to the country's vast rural population and low income levels. China's dependency on manufacturing means that without exports, the country faces falling prices, swelling inventories and rising factory closures.

No doubt about it. As the world's manufacturing powerhouse any slowdown in global demand will impact the country greatly.

When financial industry had a meltdown, cities like NY and London were badly hit with high jobless rate, office vacancies and the economies in those cities were affected. Cities that were not as badly affected probably were cities that are not significant in finance. KL or Jakarta probably had little fallout from the meltdown.

Similarly countries with small or no manufacturing base (agriculture based economies) probably see less impact from global slowdown in demand.

Just a 2 years ago, there were concerns in China about its eroding edge in the low cost manufacturing base with big gains in wages. There was talk about relocating to Vietnam where the much lower wages make up for lack of supply chain and poor logistics. Well workers in China are no longer demanding higher pay and just want a job - this in effect preserves China's competitive edge.

You had mentioned recently about South America challenging China's manufacturing superiority. Well they just had a coup in Honduras and overthrew their leader. Not exactly great inducement for capitalist to invest in long term fixed assets (factories) to manufacture goods. But that is the whole issue with South America.

As for the jobless situation - Beijing is very concerned about it and the response is a massive stimulus - no match for US stimulus given that China has 5 times the population but still it will help. On top of that this current crisis may force Beijing to set up a social safety net just like how Great Depression got FDR to put together US Social Security System. I see this creation of a social safety net as a positive step towards a more developed country.

See news article:


BEIJING, Feb. 19 (Xinhua) — China’s draft law on social insurance, which aims to create a universal safety net for all the country’s 1.3 billion people, has fueled nationwide debate since it was opened to public comment last December.

Over a 50-day time span ending Feb. 15, the country’s top legislature had received a total of 70,501 suggestions and proposals, the Commission for Legislative Affairs of the National People’s Congress (NPC) Standing Committee said in a statement Thursday.

The proposals, written on the NPC website by netizens or sent to the top legislature by letter, were from people all over the country, including Hong Kong, Macao and Taiwan, the statement said.

The social insurance draft, which underwent its second reading by the NPC Standing Committee last December, specifies a common right for citizens, urban and rural alike, to pay premiums and enjoy old-age pensions and insurance for medical care, work injuries, unemployment and childbirth.

Many netizens agreed that the law is urgently needed as the government strives to expand domestic consumption in the face of the international financial crisis.

“I believe domestic consumption will increase if people don’t have to worry about old age and expensive medical fees,” an anonymous netizen wrote on the NPC website.

China has established several policies concerning social welfare since 1984. By 2008, about 219 million people have pensions and about 317 million have basic medical insurance. An additional 124 million have unemployment insurance, 138 million have work injury insurance and 91 million have childbirth insurance.

Fu Yan, a migrant worker employed by a Beijing household management company, said both she and her husband do not have any insurance. “I didn’t know anything about insurance when I signed a contract with the company. All I wanted then was a job,” said 28-year-old Fu, who is from southwest China’s Sichuan Province.

“There are a lot of migrant workers like me. It’s OK now since I am still young, but I do worry about the future. I definitely hope the law could help us have insurance, like pension and medical insurance,” she said.

To address the concerns of migrant workers, the social insurance draft law allows Chinese citizens to pay pension premiums in one place and draw money in another, if they migrate to other cities or provinces. This stipulation is particularly significant as the country has a much more mobile population than in the past.

The draft also determined that a new rural medical system, in which farmers and governments raise funds together, would be included in the medical insurance plan.

Meanwhile, governments will cover medical insurance expenses for citizens who live on low-income subsidies, have serious disabilities or are older than 60 years, the draft said.

The draft also highlights more efficient fund management. Governments at municipal, provincial and the state-level should encourage and support the public’s participation in supervising insurance funds. Any individual or organization has a right to complain or report illegalities.

Many netizens agreed that the law will be a “blessing” to many people once it was adopted, especially to low-income groups.

“Many migrant workers, laid off workers and unemployed people don’t have any insurance. I think government should increase investment and put them under the safety net to build a harmonious and stable society,” one netizen wrote.

But not all feedback was positive. Some people complained the draft was too general.

“Articles in the draft are too simple and authorize too much power to the local government,” Tan Zhongxiao from central Hunan Province wrote on the NPC website. “Social insurance law has a direct bearing on everyone. I think the law should be more specific so that there will be no problem when being implemented in the future.”

The draft will be further revised based on the public’s proposals before it is passed on to lawmakers for the third reading later this year, according to the Commission for Legislative Affairs.

pls dun come to singapore
we have enough china man already

" You had mentioned recently about South America challenging China's manufacturing superiority. Well they just had a coup in Honduras and overthrew their leader. Not exactly great inducement for capitalist to invest in long term fixed assets (factories) to manufacture goods. But that is the whole issue with South America."

I think it is a bit far fetched to use the coup in Honduras as an example of unstable conditions in Latin America, which will put off potential investors looking for cheaper manufacturing alternatives.

There are over 20 countries there in the established OAS grouping with considerable record of political stability, good infrastructure, resource rich and a large work force that is skilled, highly skilled as well as the numbers.

The coup in Honduras is hardly a tiny blip on the economic radar screen of Latin America.

GoFlyKiteNow said:

" You had mentioned recently about South America challenging China's manufacturing superiority. Well they just had a coup in Honduras and overthrew their leader. Not exactly great inducement for capitalist to invest in long term fixed assets (factories) to manufacture goods. But that is the whole issue with South America."

I think it is a bit far fetched to use the coup in Honduras as an example of unstable conditions in Latin America, which will put off potential investors looking for cheaper manufacturing alternatives.

There are over 20 countries there in the established OAS grouping with considerable record of political stability, good infrastructure, resource rich and a large work force that is skilled, highly skilled as well as the numbers.

The coup in Honduras is hardly a tiny blip on the economic radar screen of Latin America.

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well, you have a lefty dictatorial president-for-life style of gov in venezuela, where government is taking over most businesses, most notably the energy sector. you have the same kind of gov in bolivia, where wealth from the rich is stripped and power given to the poor. you have colombia still reeling from wars with powerful drug cartels and leftist terrorist groups. you have peru which may explode anytime soon with guerilla rebels still holding out in the mountains. you have mexico which is fighting numerous desperate anarchistic wars with drug gangs all over the country. 9 off-duty federal agents were ambushed over the weekend and their bodies dumped by the highway in the middle of calderon's home state. you have brazil and her slump problems. add deforestation scams to her list, and a battle is brewing over use of land in indigenous areas in the amazon. argentina has just become a favorite stopover for american politicians involved in steamy affairs. she has long been a sanctuary for frauds and fugitives fleeing from financial crimes and crisis. chile and costa rica are perhaps the only two countries in latin america that deserve a 2nd look, yet the peace and safety there can easily be broken with leftist and narcotics uprisings.

Take a look see. This is a listing from Euromoney a respectable outfit.

USA - 91 points

China 60 points
India 57 points
Peru Costa Rica 50 points

Most of the other South American countries are in the low 30 points.

So if you are investor why even build a factory in such a high risk place.

Your ang Mor CEO probably needs a battalion of bodyguards and armored cars to move about for fear of kidnap. Make sense if you company is extracting raw material but makes no sense if you are manufacturing shoes.

Better set up factory in China or India where it is safer and you have a huge potential market to boot.



http://www.euromoney.com/Article/1898962/Country-risk-March-2008-overall-results-index-table.html

longbow said:

Take a look see. This is a listing from Euromoney a respectable outfit.

USA - 91 points

China 60 points
India 57 points
Peru Costa Rica 50 points

Most of the other South American countries are in the low 30 points.

So if you are investor why even build a factory in such a high risk place.

Your ang Mor CEO probably needs a battalion of bodyguards and armored cars to move about for fear of kidnap. Make sense if you company is extracting raw material but makes no sense if you are manufacturing shoes.

Better set up factory in China or India where it is safer and you have a huge potential market to boot.



http://www.euromoney.com/Article/1898962/Country-risk-March-2008-overall-results-index-table.html

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My friend just returned from Sao Paulo, Brazil. They ( the company he works for ) is shifting operations from China to there. His company is just following the herd pack mentality of many others doing like wise. There must be something going on to trigger this.

Don't forget, Latin America is moe than 3 times larger in land mass than China, endowed with huge mineral resources and close proximity to the US and European markets.

China have to buy minerals. The Latinos have them. And they have abundant hydro electric power which makes their production process carbon neutral, vis a vis China's coal generated power that attract carbon debit points, thus increasing the cost of its products in the European markets, when the carbon points offset system kicks in this year.

A couple of countries going hostile ( Venezuela etc ) does not make the whole Latin America unattractive for investments. It is like saying that becoz of N.Korea, the whole of Asia will suffer economically.

Costa Rica is a nature preserve location. They value that status so much they discourage pollution causing manufacturing industries. However, their nature tourism industry rakes in large revenues, much more than manufacturing can ever deliver.