HONG KONG - The Chinese government on Wednesday took steps to boost a key part
of the economy, days after a top-level meeting set curbing unemployment as a
top priority for the year ahead.
Chaired by President Hu Jintao and Premier Wen Jiabao, the annual Central
Economic Work Conference last week concluded with a statement, broadcast on
state television, that with the need to create jobs to maintain social
stability, the government would
stick with a "proactive" fiscal policy and a "moderately loose" monetary policy
next year - that points to higher spending and an easier tax regime.
Reflecting these intentions, the government on Wednesday said it would lower
property sales taxes and reduce the lockup period for home sales to stem a
decline in the market. China's residential home sales fell 20.6% in the first
11 months from a year earlier, Bloomberg reported, citing the country's
Statistics Bureau. The government also urged banks to increase loans to
developers of low-priced housing.
Job creation - and avoiding unrest as more people are thrown out of work - has
become a top priority for China as exports plunge, domestic demand shrinks and
foreign investment inflows decline. Already, isolated protests by workers and
suppliers over unpaid wages are being reported, along with a surge in work and
pay disputes, indicated by a jump in the number of labor arbitration cases in
Guangdong.
Social stability could be threatened if the registered urban unemployment rate
rises above 5% next year, said Zheng Gongcheng, a member of the National
People's Congress Standing Committee and a leading scholar in social security
at Renmin University of China.
Registered unemployment in urban areas stood at 4% at the end of the September.
That does not reflect the reality on the ground, as this measure usually does
not count all jobless people in cities or rural migrant workers, who make up
most of the workforce for small and medium-sized enterprises.
The Central Economic Work Conference took place against signs of growing
tension between producers and suppliers and employees and workers as the impact
of the global economic slowdown hits China's exporting industries. A police
station in Luoho, across the border from Hong Kong, was recently reported to
have been besieged by 30 suppliers seeking thousands of yuan in payments for
their goods, while an owner of Xijian Industrial Development Co Ltd, called
Zeng, was being questioned in the station.
Arbitration cases where workers seek payment from companies going bust or
having to cut back in production are mounting. Xie Yingjian, director of the
arbitration office of the Labor and Social Security Bureau in Guangdong's
capital, Guangzhou, said that at the end of November more than 60,000
arbitration applications had been made this year - about the same as the
combined total for the previous two years.
In October, Hong Kong-owned Chong Yik Toy, BEP International Holdings, Hong
Kong-listed Smart Union Group (Holdings) and Peace Mark (Holdings) declared
bankruptcy, leaving more than 8,700 factory workers in various Guangdong cities
without jobs.
"There has been a sharp increase in the number of cases since May," Xie was
quoted by China Daily as saying. "About 60% of them are claims for back pay,
with most of the rest being appeals for compensation from people who have been
made redundant."
The extent of the unemployment will be further masked as the country's millions
of migrant workers head home to visit their families in distant provinces
during the Lunar New Year break, which this year falls in the last week of
January. Many will not return. There are about 230 million migrant workers in
China, 120 million of whom are working away from home, Zheng said.
Low-skilled migrants are the hardest hit in the present downturn, as overseas
consumers slow purchases of low-value-added Made-in-China exports such as toys,
electronics and clothes. These and other exports generated 37% of the country's
gross domestic product last year. More than 3,600 toy factories in Guangdong
shut down in the first seven months this year, and at least 2.7 million workers
in southern China are likely to lose their jobs, according to Xinhua News
Agency.
The central government has already announced a 4 trillion yuan fiscal stimulus
package and measures that will expand subsidies for exporters and small
businesses. Much of the package will fund infrastructure and construction of
cheap housing, which will help to create jobs in provinces remote from the
relatively affluent coastal areas.
Interest rates have been slashed four times since September, the most recent
cut last month the deepest in 11 years. Following on from last week's economic
conference, more steps are expected soon.
HSBC said in its research report in December that shrinking global demand is
squeezing labor demand in the export sector, which probably accounts for nearly
half of around 100 million manufacturing employment in China. The bank's
estimate of the number of migrant workers who could lose their jobs in the next
few months was put at up to 5 million. That will further cut spending in the
domestic economy, seen by many analysts as the key to driving China through the
present downturn.
"Already, trains from Guangdong, the country's major exporting powerhouse, to
interior regions are packed with returning migrant workers. Their spending is
going to slow in the coming quarters, though the savings accumulated in the
last few years will support their daily basic consumption for some time," it
said.
HSBC believed that once Beijing's stimulus package started to filter through in
2Q09, new construction jobs would be created. The Ministry of Railways, for
instance, estimates that new rail projects will create about 3 million jobs a
year.
"But what about non-manufacturing employment, accounting for nearly 65% of
total urban jobs, in cities? Some foreign trade-related sectors, such as
logistics and transportation, will also likely cut jobs in the coming quarters.
However, their share of the total non-manufacturing urban jobs is less than
10%," it said.
Behind China's aim of maintaining stable economic growth is the need to create
enough jobs for the 20 million new workers who enter the workforce each year, a
key to social stability.
However, given the global economic slowdown, finding jobs will be tough. The
conference statement recognized that the global economic situation had worsened
since July, and said difficulties in the Chinese economy were growing and
downward pressure on economic growth was increasing.
Growth in the economy declined to 9% in the third quarter of this year, from
10.1% in the second quarter and 10.6% in the January-March period, after 11.4%
growth in gross domestic product (GDP) last year, the fifth annual double-digit
increase in a row,
The World Bank last month forecast global growth of less than 1% next year, its
slowest in almost 40 years. International trade would shrink by 2.1% next year,
the bank said. China's economic growth may slow to 7.5% next year, the lowest
since 1999 when China was suffering fallout from the 1997 Asian financial
crisis, the bank said. The country's exports contracted 2.2% year-on-year last
month to US$114.98 billion while imports dropped 17.9% year on year to US$74.89
billion.
As growth slows, one benefit is a fall-off in rising prices, with producer
price inflation falling last month to a 23-month low of 2% compared with a year
earlier, down from 6.6% in October. Consumer price inflation declined to 2.4%
year-on-year last month, from 4% in October, led by falling food prices, the
National Bureau of Statistics said on December 11.
Reflecting the global credit squeeze and pointing to declining confidence in
China's growth potential, at least in the short term, foreign investment
plummeted 36.5% in November compared with a year earlier to US$5.32 billion,
the Ministry of Commerce said on Wednesday.
Merrill Lynch said the decline in foreign investment was a result of the global
credit crunch, the slowing economy and speculation that the value of the
Chinese currency, the yuan, would fall.
"The market expected a 5% to 10% depreciation of the yuan against the US
dollar, discouraging capital inflows either for direct investment or for
speculative purposes," it said in a research note.
For three years since the government ended the peg linking the yuan to the US
dollar, the currency's value has appreciated. A reversal of that trend this
month was seen as an indicator that Beijing was prepared to use exports to push
its way through the present crisis.
The yuan on Wednesday rose to its highest in more than a month, extending gains
this year to 6.8% compared with the US dollar. That may indicate the government
has not adopted a depreciation policy, Bloomberg reported.
"The market has got a clear message from the reference rates that the central
bank won’t shift its yuan policy," the report said, citing a foreign-exchange
trader at China Merchants Bank Co.
Olivia Chung is a senior Asia Times Online reporter.
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