Published February 10, 2009

Scale of China's job woes ballooning: economists

They say Q4 growth well below official level and may have turned negative

By ANTHONY ROWLEY
IN TOKYO

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THE surprise acknowledgement last week by Chinese officials that 20 million migrant rural workers have lost their jobs because of factory closures in China's coastal provinces was a signal of official concern at a problem, according to informed sources. Yet even now it is being understated and is destined to become bigger as the country's economy slows down dramatically, they add.

Taken together, the soaring number of redundant migrant workers, a sharp fall in China's fiscal revenues and a rapid rise in non-performing bank loans suggest that economic growth there has fallen well below officially stated levels, and may even have turned negative in the final quarter of last year, economists in Shanghai told The Business Times at the weekend.

'The unemployment situation in China has changed dramatically in the last two weeks, since the Spring Festival,' Yoland Fernandez, an economist at the Asian Development Bank said. 'Up to now, we had not been aware of the real scale of the problem, for a number of reasons.

'Labour statistics in China are very poor: usually they only include workers in the state-owned enterprises and in government agencies. So there is no way to track this unregistered, floating exodus of migrant workers which is estimated at around 150-200 million in the coastal areas.

'We have been relying so far only on anecdotal evidence and it was mainly only from Guangdong province.' The export slowdown in China was felt only from last October because of a time lag between when orders are placed and factory activity closes, said Ms Fernandez.

'In addition, China's export-oriented sector has been undergoing structural transformation, shifting from low to high valued-added products. This naturally affects workers in the low value-added chain so it was difficult to know whether (redundant) labour was coming from the crisis itself or from this process of restructuring.'

There is no doubting the scale of the problem now, however. An official in the Communist Party office on rural policy said in Beijing last week that 20 million migrant workers had lost their jobs in recent months. 'What are they going to do for income when they return to their villages?' he asked.

Even the figure of 20 million almost certainly understates the true size of the problem but is designed to prepare China's population for a rapidly worsening situation, sources said. 'During the Chinese Spring Festival period people are returning home with no hope of coming back,' Harvey Chen, chairman of the First Light Academy in Shanghai told BT.

Factories are still closing 'at a rapid rate' in China's Pearl River Delta area where much of the country's export-oriented manufacturing of electronics, toys and many other consumer goods is centred, said Mr Chen, who is a member of the China State Council Overseas Expert Advisory Commission.

The position is less clear in the highly-industrialised Yangtze River Delta area, which has also attracted large number of rural migrants. Many factory owners there claim to be able to survive, said Mr Chen. But mounting levels of non-performing loans at banks suggest that factory owners are struggling in a deteriorating export environment, he noted.

'The unemployment situation has become more worrying now because it could cause social disturbances,' said the ADB's Ms Fernandez. 'But we are confident the government has the resources to handle the situation successfully because conditions now are much better than in the 1990s when China reorganised its state-owned enterprises.

Some 50 million workers were laid off then and mollified through compensation, subsidies and some re-training.

'This time, the government has much more resources and those affected now are migrant workers who unfortunately have few rights. They are unregistered. But at least they have a home in the countryside they can go back to,' said Ms Fernandez.

The strengthening of rural development in China in the past few years has been 'quite impressive', noted Ms Fernandez. 'Education is again free now, taxation in the agricultural sector has been abolished, administrative prices for grain and major crops are being raised and subsidies and other benefits are being supplied to these returning migrant workers.'

Others such as Mr Chen at the First Light Academy point to the fact that many of the rural migrants have lost their land owing to market reforms in China. 'Those people have no home or no land to return to,' he said 'They will be homeless people. That will be a social issue, I think.'

Mr Chen also worries about the strain placed on Chinese authorities by having to cushion part of the population against unemployment at a time when fiscal revenues are falling fast. 'The fiscal revenue decline has been very steep,' he said. 'Last year for central and local governments, it was growing at 20 per cent but from last October it went all the way down to around zero and was negative in December.'

There is normally a 66 per cent correlation between fiscal growth and the growth of Chinese GDP, he said. So, the sudden collapse in fiscal revenues during the final quarter of 2008 suggests that economic growth too is collapsing.