As China's growth cools, the real worry in Beijing: unemployment

The legitimacy of the Communist Party is closely linked to its ability to deliver a good life to China's hundreds of millions of workers. 

Until last year Wang Shanhong, a lively young woman with a ready smile, worked in the control room of the Songting Iron and Steel mill, the behemoth plant around which this scruffy town in northeastern China was built.

Now she is scraping together whatever she can by baking gaudily frosted cakes to sell in her aunt’s store. Squeezed by falling demand and prices for steel, the Songting mill suspended operations and sent all its 7,300 workers home without pay last November.

“I’m hardly making anything,” Ms. Wang says. “We only sell one or two cakes a day because nobody here can afford them. People are worried and complaining that they have no money.”

China’s slowing economic growth rate is spooking the rest of the world because of its effects on other economies and stock markets. But in Beijing, says Feng Shuaizhang, a professor at Shanghai University of Finance and Economics, “one of the most important reasons the government is worried about the economic situation is unemployment.”

“Unemployment is politically important,” adds Geoffrey Crothall, of the Hong Kong-based China Labour Bulletin. “The legitimacy of the [ruling Communist] party is based to a large extent on its ability to deliver a good and stable life to people.”

Not that the government has reason to yet worry about mass unemployment feeding political unrest, he says. Chinese workers are flexible enough, and there are enough available jobs – however poorly paid and insecure – to avert an immediate crisis. But warning signs are starting to appear. 

Signals of unemployment 

Nobody believes China's official unemployment figures. Those numbers have hovered reliably between 4 and 4.3 percent for more than a decade, impervious to changes in China’s economic fortunes. Most experts believe 5 to 6 percent is a more plausible jobless figure. 

There are signals, however, that unemployment is rising in key sectors.

In southern China, the so-called “workshop of the world," employers are shedding jobs as they move their factories abroad or inland, in search of lower costs. And two of the traditional powerhouses of China’s industrial economy, coal and steel, are expected to lay off millions of workers in the coming years to cope with falling demand, overcapacity and environmental issues.

In the late 1990s, recalls Andrew Batson, an analyst at Dragonomics, an economics consultancy in Beijing, “it did not shake the fabric of society” when state-owned enterprises sacked some 30 million employees in the space of a few years of economic reform.

Today’s situation is not as dramatic as that. But that is partly because the authorities are doing their utmost to convince employers not to lay workers off into a slowing economy where their resentment might fester, especially since unemployment benefits are worth only a pittance.

“The state sector tries not to lay off people when the economic situation is not so good, and local governments subsidize even private companies to keep workers on the payroll,” says Prof. Feng.

Prime Minister Li Keqiang likes to point to the high-tech sector and to innovation as job creators. Few unskilled migrant workers or former steelworkers are likely to migrate in that direction, however.

In Muchangkou, for example, if Songting closes its gates for good, as many fear it will after the upcoming Chinese New Year holiday, employees say they will be reduced to casual labor.

Ms. Wang is thinking about selling clothes in a street market in the nearby city of Tangshan. One electrician with 22 years' experience at the Songting mill has already found day work as a welder. Other workers have sought security guard jobs in Beijing, 140 miles away.

“If things don’t change after the New Year I will have to think about going elsewhere to look for work,” says Wang Yang, a laborer at the mill who asked to use a pseudonym to avoid repercussions for talking with a foreign reporter. “The trouble with that is that the money won’t be enough.”

“I don’t want him to leave, but as a man he has to go out and find a job,” says Mr. Wang’s wife, a storekeeper at the mill who – like her husband – has not worked for more than two months.

“Younger workers have always been fairly flexible,” says Mr. Crothall at the labor bulletin. “But the jobs available now are largely lower paid, insecure, and often without proper contracts.”

12,000 private firms a day registered in 2015

The prospects for workers who lose their jobs today are much more varied than those in the 1990s. The state-owned sector of the economy, which once was dominant, hires only 30 percent of the workforce today, and only 10 percent of the manufacturing workforce.

Some 12,000 new private companies were registered every day last year, according to a report last month by the National Bureau of Statistics. More than 6 million people sell goods on Taobao, an ubiquitous e-commerce website, making themselves some income and often creating jobs.

At the same time, “in the 1990s we were at the beginning of a boom and it is clear that today we are at the end of that boom,” points out Mr. Batson.

“On the one hand the economy itself is better able now to accommodate laid-off workers from the state sector,” says Feng, “but on the other hand the economy is not doing so well, so private sector demand [for labor] is not so great.”

Helping the situation somewhat are demographic trends, as population growth slows. The working-age population fell for the fourth consecutive year in 2015, to 911 million, according to the statistics bureau. Migrant worker numbers fell, too, for the first time in three decades.

But that is not likely to lighten the mood at next week’s New Year festivities in Muchangkou. “Last year the mill gave us free rice and flour” with which to make traditional celebration dishes, Ms. Zhang remembers. “This year we’ll have to buy it ourselves.”