Unemployment fears stalk once-roaring China

BEIJING Tue Nov 4, 2008 7:32pm EST

Migrant workers sit in their sleeping bags with their belongings as they wait for potential employers to arrive at an unofficial labour market located under a bridge in central Beijing October 30, 2008. The global economic slowdown, contrary to some predicitions, is taking its toll on China and threatens to swell its ranks of the unemployed, especially the rural migrant workers who have long streamed into cities to build office towers, clean streets and staff factories. Picture taken October 30, 2008. REUTERS/David Gray

Migrant workers sit in their sleeping bags with their belongings as they wait for potential employers to arrive at an unofficial labour market located under a bridge in central Beijing October 30, 2008. The global economic slowdown, contrary to some predicitions, is taking its toll on China and threatens to swell its ranks of the unemployed, especially the rural migrant workers who have long streamed into cities to build office towers, clean streets and staff factories. Picture taken October 30, 2008.

Credit: Reuters/David Gray

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BEIJING (Reuters) - Short of food and running low on cash, a group of men huddled under a bridge in Beijing and waited for someone, anyone to come by and offer them work, any work.

The global economic slowdown is taking a toll on China and threatens to swell its ranks of the unemployed, undoing impressive income gains made in recent years and undermining the 'harmonious society' that the government prizes above all else.

Hit especially hard are the rural migrants who have long streamed into cities to build office towers, clean streets and staff factories.

Under the bridge in southwest Beijing, an area where construction managers would hire crews in better times, Ren, a day laborer in his 40s, contemplated giving up and returning to his patch of farmland in Hebei province.

"This is the worst I've ever seen it. Normally I can get a job in a few days, but I've been out here a month already," he said.

Whether Ren goes back or not, he and an estimated 130 million rural migrants like him are not legally registered as living in the cities where they work and so do not show up in official employment statistics.

But evidence is mounting that their prospects have turned bleak in the space of just a few months. The government, which bases its quest for social stability on economic strength, has responded with tax breaks, interest rate cuts, big spending projects and pledges to do more.

The suddenness with which China's economy has lost momentum is Beijing's immediate concern. Annual growth in the third quarter sank to 9 percent, well down from its scorching 11.9 percent pace in all of last year and putting the country on track for its first single-digit expansion since 2002.

The extreme ravages since then of the global financial crisis have raised the specter of a further slowdown to 8 percent -- enough to be flirting with recession in Chinese terms.

Most countries would salivate at such growth, but for China it is a tipping point: anything less, experts say, and the economy cannot create enough jobs to keep up with the mass of humanity, at least 15 million people, entering the labor market every year.

"If economic growth fell below 8 percent there would be tension, social tension, complaints and job losses," Chen Xingdong, chief economist at BNP Paribas in Beijing, said.

"You can understand why the Chinese government seems to have become desperate about delivering all kinds of stimulus measures," he added.

FRUSTRATION

A small taste of exactly what the government wants to avoid came last month in the southern city of Dongguan, an exporting hub near Hong Kong. About 1,000 laborers protested outside a toy factory, demanding unpaid wages after the firm, battered by the downturn overseas, closed its doors.

In Wenzhou, an export powerhouse in the east, about 20 percent of workers have lost their jobs, prompting an exodus to the countryside, local press recently reported.

"We must be crystal-clear that without a certain pace of economic growth, there will be difficulties with employment," Premier Wen Jiabao warned in the latest issue of the Communist Party's ideological journal, Seeking Truth.

"Factors damaging social stability will grow," he wrote.

Pain has spread throughout China, not just its export sector.

Industrial production slumped in September to its weakest annual growth in six years and real estate development has slowed as prices have faltered. Business managers have started to cut staff, a pair of recent surveys showed.

Just last year, companies complained that China's surging economy had led to labor shortages and forced wages higher.

But workers' newfound bargaining power may have been short-lived. Groups of men sat dejectedly on the kerb as they came to the end of another day of waiting in vain for work at a job market in a south Beijing parking lot.

"I've been here for three weeks and not seen one boss come past. It used to be bosses everywhere," said Xiao Wu, 38, who worked on building sites in the capital for the past five years.

Wu's oily hair and blood-shot eyes bore testimony to the 20 nights he said he had slept in a railway station, splashing water from a public restroom sink on his face to wash every morning.

"I'd go back to my hometown but I don't even have the money for the train ticket," Wu, from the central province of Henan, said.

THIN CUSHION

Migrant laborers have little in the way of a cushion to fall back on when they lose a job.

"Their social protection is quite low and their jobs tend to be less formal, often with no legal framework, so they are more susceptible to shocks," Du Yang, a labor economist at the Chinese Academy of Social Sciences, said.

Under China's social security system, citizens can collect welfare payments only in the city where they hold a hukou, or household registration permit, usually their birthplace. That means the vast majority of rural migrants have no coverage.

China has begun to beef up its social security system, but with tax revenues plummeting as the economy slows, big improvements for migrants are off the table for now.

The farms they left behind in search of better lives are their only safety net.

"Most have land in the countryside, so they could always go back to that," said Wang Xiaolu, deputy director of the National Economic Research Institute, a think-tank in Beijing.

"If they've been in cities for a long time, they might find it tough to readjust to the countryside. Conditions are more difficult and income is lower," he said.

The average farmer's income was 4,140 yuan ($605) last year, less than one-third the urban average.

Many of the thousands of sometimes deadly protests that erupt across China every year have their roots in rural discontent over economic hardship.

Remittances from migrant laborers have been among the best ways of transferring wealth to the countryside, making the loss of urban jobs all the more worrying for a government that sees easing the city-farm imbalance as critical for social peace.

DRAG ON CONSUMPTION

White-collar workers are also feeling the sting from the weak economy, if not in quite the same way as migrant laborers.

Employees at CITIC Securities and Haitong Securities will take pay cuts of up to 30 percent as the brokerages try to shave costs without laying off staff, according to company sources who spoke on the condition of anonymity.

At an official job center in Beijing, Huo Yong, an electrician, sat in front of a screen listing job advertisements, noting down one offer for 1,500 yuan a month.

"If you have skills like mine, you should do fine," he said. "But see that salary? Speak to the boss in person and I am sure he would say it is lower."

China has pinned its hopes on domestic demand filling in for sagging exports. That will be hard to achieve if pay packets are being slimmed.

"Consumption is definitely going to be affected, because income will be affected," said Chen of BNP Paribas. "By the first quarter of next year, we should be able to see quite a dramatic slowdown in retail sales."

Curiously, the one economic gauge that few expect to deteriorate is the unemployment rate.

China's urban jobless rate was 4.0 percent at the end of September, utterly unchanged over the past 12 months.

The problem is that it measures only legal urban residents who actually report they are out of work and register for unemployment benefits. It excludes the tens of millions of migrants laboring in cities.

Economists think China's real jobless rate could be twice as high as the government's figure.

Trouble in the months ahead may, officially at least, go unreported.

"The trend is clear. Unemployment is rising. That's for sure, but by how much, we don't know," Chen said. "And if the official statistics do show the unemployment rate going up strongly, then the economy would really be in big trouble."

(Additional reporting by Michael Wei; Editing by Megan Goldin)

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