The sad Christmas of China’s economy, ever closer to collapse
Beijing (AsiaNews) – The depression of the world economy puts China under pressure, export-oriented manufacturing is also going through a winter period. By the end of November, statistics show that Chinese export has been suffering negative growth for five consecutive months, and import for an unprecedented 13 months.
Lower demand has lowered output and cut commodity prices. A slack economy performance plagues manufacturing. Chinese policy-makers expect to steer economic growth from investment-led to one that is driven by consumer demand or service-led, but the transformation of traditional labour-intensive industries has long way to go.
Labour is abundant in China, but recruitment has come to obsess the entrepreneurs. The advantage of cheap labour in southern Guangdong Province is not salient anymore. Bosses tend to relocate their factories in inland provinces, or further afield, in Southeast Asia. In addition, in recent years workers have come to realise that the influx of younger migrant workers with better education has brought greater vibrancy to this group.
The younger generation seeks better salary, working conditions, welfare and social insurance. Greater awareness about their rights is also increasing in labour disputes. Workers negotiate with their bosses, go on strike or demonstrate to put pressure on employers and local government. NGO and lawyers also intervene to offer necessary help. Some activists were even able to establish independent labour unions, although they did not last long because the authorities quashed them.
According to Hong Kong-based NGO China Labor Bulletin, the number of strikes and labour protests hit a record high in November. A marked increase in protests followed plant closures and bosses’ flight resulting in constant slowdown of Chinese manufacturing. As demand and exports shrank, bosses with financial problems refuse to pay wages or just vanish. Meanwhile, protesters are deemed troublemakers and arrested for causing disruption, or illegal assembly. For the authorities, stability remains the priority.
Once a prosperous city on the Pearl River delta, Dongguan is now plagued by rising labour costs and a drop in exports. As the end of the year approaches, we can see the difference. In the past years, factories received more orders, hired more workers, and worked overtime. Now the city’s industrial zone has cooled down. The main industries in Dongguan are small and medium-sized enterprises making electronic equipment, toys, leather goods, and clothing businesses.
Lin Jiang, professor at Sun Yat-sen University, said that during the period between Asian financial crisis of 1997 and the global financial crisis of 2008, the electronic industry enjoyed the golden age in Dongguan, and the city became the processing and manufacturing hub for the global IT industry. Profit levels for the city’s five listed electronic companies are down. Janus Dongguan Precision Components Co. Ltd, which supplies Samsung, lost 169 million yuan in the first half of this year.
Once hustling and bustling, factories are turning on empty. Signs advertising “workshop for rent” can be seen everywhere in the industrial district. Recruiting posters outside factory gates are outdated. Some companies are still operating, but have not recruited in a while. In 2014, it was said that over 4000 enterprises in Dongguan closed, a number not confirmed by authorities. Dongguan Mayor Yuan Baocheng said that some companies went bankrupt without filing a report with the proper authorities. He admitted that the economy was facing critical challenges, especially small and medium-sized companies, and the city is faced with companies going bust.
According to the National Business Daily, job losses has made life difficult for dispatched work agencies. Yangcheng Evening News reported some large companies have begun not to pay holiday almost two months ahead of China’s Spring Festival.
The same has been going on in the eastern coastal city Wenzhou, where businessmen are regarded as born merchants. Now instead, Wenzhou businessmen prefer speculation, blind expansion, and diversification. Bank loans have become a potential bomb for private businesses. Since 2008, the Chinese government has promoted simulative policy, but later companies were allowed to guarantee each other to get bank loans.
In 2010, when China’s central bank tightened monetary policy, companies suffered a cash flow problem and turned to shadow bank system. This pushed up interest rates, causing a jump in bad debts and a bosses flight. Usury destroyed a number of companies. According to the Wenzhou Statistics Bureau, the number of firms with an annual turnover of more than 20 million yuan stood at 4,266 in 2014, a far cry from the 8,096 of 2010. The Wenzhou court has accepted more bankruptcy petitions in 2015 than in 2014.
As manufacturing slows down, speculation in the stock market has become a frenzy. The general optimism earlier this year in stock market did not last long. Encouraged by state-run media, the boom turned to bust on 12 June. The government took urgent measures to curb the plunge, including the suspension of initial public offerings, the ban on short selling, and having state-owned companies buy back their shares. Yet, on 24 August, the Shanghai index suffered its largest fall since 2007 by 8.48 per cent.
The turmoil in stock market did not stop individual investors. Internet financing frenzy has attracted ordinary people, and the resulting bubbles are now bursting. A form of shadow banking, peer-to-peer (P2P) lending has attracted investors by promising high interest rate. According to statistics, the trading volume in P2P lending was 133 billion yuan in November, and the balance of the peer-to-peer industry was 400 billion, an increase of 13.94 per cent month-on-month and 447 per cent year-over-year. Start-ups in the P2P sector have spent money in advertising and high annual rate to attract investors. However, speculation and the collapse of capital chain has led to an insolvency crisis, sealing their fate. Some of the bosses left everything and fled.
Created in 2014, Ezubao, a P2P lending platform, reached 74 billion yuan in volume and 909,000 investors in 21 months. Earlier this month, police announced that it was investigating the company for suspected illegal activities. Worried about whether they can get their money back, some investors demonstrated in Beijing, where they were quickly dispersed by police. After the Ezubao scandal, another major scandal came to light involving the Dada Group, a large financial company with over 700 branches and a staff of 78,000. The president of the company is under investigation for illegal fund raising.
The monopolised market by state-owned companies and unfavourable condition for private business make people turn to the parallel banking system. Insolvency problem surfaces in unregulated finance market. Unemployment and a slowing economy are this country’s obsession. For this year, the International Monetary Fund has forecast 6.8 per cent growth for the Chinese economy, down from 7.4 per cent last year, the lowest in over two decades.
Inevitably the era of 10 per cent-plus annual growth has passed. In the age of a “new normal”, a term Xi Jinping uses to describe slower growth, China’ economy will go through the hardships of restructuring. This comes with a widening gap between rich and poor, unemployment, and environment problems.
Since reforms began and China opened up, economic growth has maintained the legitimacy of the Communist party. Now industrial transformation and restructuring will have an impact on the job market. The arrival of millions of graduates and college students will also be a challenge. The internet spreads information and raises people’s awareness at a faster rate. Since Xi Jinping came to power, the authorities have tightened control on society. More lawyers have been arrested. As people seek solace in religion, authorities tries to hold it back.
Internet censorship is get stronger. The comprehensive control of society is indicative of the authorities’ concern about social unrest. In September, Politburo member Wang Qishan openly discussed the party’s legitimacy for the first time. Although official media hailed his speech as “ground-breaking” and “a manifestation of the party’s confidence”, it also shows that the party has become aware of potential risks and looming crises.
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