Beijing trying to cope with rapidly rising unemployment

Human Resources and Social Security Minister Yin Weimin acknowledged today that the number of newly jobless reached 10.2 million in the first 10 months of this year as a result of a weakened export sector. He expects that number to rise further next year. Therefore, “stabilising employment is the top priority for us right now,” Mr Yin said.

A survey of 84 cities by his ministry showed that demand for workers fell 5.5 per cent in the third quarter. Government statistics also showed that 67,000 factories of various sizes were shut down in China in the first half of the year. By year's end, that number should reach more than 100,000 plants.

China's GDP expanded 11.9 per cent last year, but grew “only” at an annual rate of 9 per cent in the third quarter of this year, the lowest in five years and worse than what analysts had forecast.

Small and medium enterprises in labour-intensive sectors like the textile and garment industry and car manufacturing have been hardest hit.

The mainland's official urban unemployment rate was still around 4 per cent, but is expected to rise to 4.5 per cent by the end of the year, Mr Yin said. However, migrant workers “are not included in our statistics,” he added.

Migrant workers are estimated to be around 120 million and, according to Mr Yin, “are affected most severely” by the current crisis, ending up jobless, with no place in the big cities, forced to return to native villages they left 20 or 30 years ago in search of a better future.

After a long battle to impose minimum wage levels the government now wants to cut them to help struggling firms avoid laying workers off.

In Hubei province the permission of the local government is required before laying off more than 50 people.

Guangdong, which is China economic powerhouse accounting for about 30 per cent of its exports, has seen thousands of its plants shut down, including 3,600 toy factories, half the industry's total.

Last month Smart Union Group, a toymaker that supplies Mattel Inc. and Hasbro Inc., stopped production in three huge factories, leaving more than 8,700 workers jobless in Dongguan city.

Often companies do not pat the last wages provoking tens of protests by laid off migrant workers demanding back pay.

In Guangdong the authorities were forced to cover US$ 4 million in back wages.

Now there are also fears that thousands of plants will shut after Chinese New Year in February.

Forecasting hard times, many company executives have simply stopped paying suppliers and employees, fleeing with whatever company cash they had put aside.

In Shaoxing the Jianglong Company (river dragon in Chinese) boasted sales of about US$ 110 million, posting a profit of million last year. This year it stopped making any payment, telling suppliers that it was raising capital. It has not gone bust.

On the day Jianglong was shut down, 2,000 workers jammed the streets outside the factory, blocking traffic, demanding answers, scuffling with police. Later that day, government officials agreed to pay employees.

In all this Beijing is proposing tax cuts to help companies cope with the situation. Hundreds of administrative fees have been abolished to ease the financial burden on businesses.

Today new tax cuts have been announced for the textile and garment industry to stimulate exports, already hit by an 11 per cent drop in the first quarter of the year, that is, before the current global meltdown began.

But every sector has its own woes. Car manufacturers are also clamouring for tax breaks and warn that without them they will not be able to stay in business.

In many cities like Chongqing, Lanzhou, Sanya taxi drivers have also gone on strike. In Shanghai they are complaining of having to work 18-hour shifts for 2 to 3,000 yuan a month.

Mayor Han Zheng talked to them during a two-hour meeting, an unusual step in Communist China where labour disputes are typically “solved” by police interventions.

Last week Prime Minister Wen Jiabao urged banks to ease credit for small companies.

But just a few months ago the government tried to rein in inflation by restricting credit and China’s central bank raised the cost of borrowing several times this year.