Workers

Economic crisis and job losses in China: Blame victims, threaten crackdown

Even before the media began saturation reporting of the global economic crisis, many employers in China had been closing shop or showing vast numbers of their workers the door under one pretext or another. A favourite excuse has been that the Labour Contract Law (LCL) which took effect in 2008 was to blame for the closures of thousands of manufacturing units and the laying off of more than 25 million workers at least.

In reality, many of these closures are linked neither to the global economic crisis nor the labour law. A large number of these closures are due to businesses ending low value production or fly-by-night operators decamping, seizing whatever assets and cash they could carry, including unpaid wages.

However, even if many of the factory closures were linked to factors external to the units’ management, legally the owners could not simply abscond, leaving workers high and dry. And yet, that is precisely what seems to have happened in myriad cases.

Meanwhile what of the authorities? How have they been going about their duty to protect the rights of workers? The following account examines what has been happening with regard to factory closures in China and the response that has been generating.

Factories close by the thousands, tens of millions left jobless

Until the end of October 2008, as many as 15,661 firms shut shop in Guangdong province alone. [NOTE1] One of the most prominent was the Hong Kong-listed toy company, Smart Union, which closed in October in Dongguan city, leading to 7,000 jobs lost according to most reports but the direct loss of 12,000 jobs and the indirect loss of many more. [NOTE 2]

Although reports indicate that Smart Union’s closure, despite a heavy backlog of orders, was not of the firm’s making and that it was due to a series of circumstances beyond its control, it is highly unlikely the thousands of company closures were all unavoidable.

On 1 November, the Taiwanese boss of Weixu or China Top Industries in Chang’an climbed over the factory wall and fled the country, leaving 2,000 workers in the lurch, apart from unfulfilled orders from many US shoe companies. When some workers staged a protest, demanding two months’ back pay, the government sent riot police after them and jailed seven workers. Six workers were beaten. Subsidiary businesses servicing Weixu were also shut, leaving hundreds more workers in the lurch. [NOTE 3]

Earlier, in October, another Hong Kong-owned firm, the Chong Yik Toy Company, closed down in Shenzhen, leaving 900 people jobless. [NOTE4] Reports were unclear as to whether district officials’ initiative in arranging compensation had indeed covered all the affected workers.

Appeasement efforts: 500 Yuan compensation and sacking by SMS

Another Taiwanese owned firm to close was Dayi Shoe Factory in Guangzhou’s Baiyun district, also leaving 900 jobless behind. The district government set up a taskforce and provided a “subsidy” of 300 Yuan to each worker. The taskforce arranged jobs for 100 of the workers in other shoe manufacturing units. Earlier before Dayi closed, the district authorities had sent text messages to about 400 workers, telling them not to return. [NOTE5]

In December, the Shatangbu Yifa Rubber & Hardware Factory in Shenzhen closed after the Hong Kong-based owner disappeared. Workers sought back pay and severance. Local officials gave the employees 500 Yuan from a special fund, but said other claims would have to go through a bankruptcy court. [NOTE 6]

Protests rise but what figures are correct?

According to Liaowang magazine, run by Xinhua, labour protests jumped 93.52 percent in the first 10 months of 2008 over the same period the previous year. In Beijing alone, protests to demand back pay increased 300 percent and the numbers taking part went up nine-fold in November compared to the same month a year earlier. Despite continued efforts to resolve the issue of back pay, Chinese employers are said to withhold an estimated US$4 billion a year of their workers' wages. [NOTE7]

In 2008 there were a reported total of 120,000 mass incidents compared to 90,000 in 2006. According to unofficial sources, in the first three months of 2009 there were around 58,000 mass incidents. While mass incidents remains a vague term and includes many rural or land related protests the figures represent a significant increase and is usually made up of around 40 -50 labour related cases.

While many disputes have occurred in tandem with the new labour contract law – arbitration bodies and law courts have seen massive rises in the number of cases being handled after the law came into effect in January 2008 – many disputes, especially those of a spontaneous nature have occurred as a direct result of companies folding or laying off workers.

See ACFTU in a time of crisis: Back to the old ways? In Beijing in the first nine months of the year, labour dispute arbitration cases increased 103 percent. Disputes in Zhejiang, Guangdong provinces also have high increased up to 246 percent and 73 percent respectively.

While many companies have genuine difficulties many are using the crisis as an excuse to lay off unwanted costs, reduce wages and some are folding as a result of poor management, low profit margins and company recklessness in investing profit in the stock market and not in the company.

In 2008, until the end of October, 15,661 firms closed in Guangdong province alone. [NOTE 8]And the process is continuing, with a report in February quoting the provincial labour bureau survey as find that in the months to come, one fifth of units in Guangdong planned to let workers go. [NOTE 9]An earlier report had quoted the Federation of Hong Kong Industries as warning that up to a quarter of about 70,000 Hong Kong-owned factories could close 9although it must be remembered that the federation has its own agenda in playing up fears!). [NOTE 10]

How many workers have been affected so far? One US newspaper report in early February put the figure at 26 million migrant workers. [NOTE 11] But almost every other report, Chinese and foreign has been going with the figure of 20 million left jobless. This figure has remained unchanged since October. It is inconceivable that over a period of five months, there would be no revision, most likely towards a rise in the numbers left jobless.

In fact, one academic was quoted in late January as saying unemployment could easily reach 50 million. It has also been suggested that migrant workers are now younger and more volatile than the estimated 35 million laid off following the Asian financial crisis in 1997 and that news spreads faster these days thanks to the use of mobile phones and the Internet. In addition, the situation is being compounded by the increasing numbers of unemployed and under employed graduates and urban workers. [NOTE 12]

However, the figures are difficult to assess as the 20 million figures is itself based purely on a random sample of 150 villages. In February 2009, Chen Xiwen, the vice director of Central Financial and Economic Leading Group of CPC first used the figure of 20 million migrants losing their jobs when he the figure came from an official survey of the Ministry of Agriculture  which   interviewed 150 villages in 15 provinces just before Chinese New Year. The survey stated that almost 40 percent (of the migrants who had returned for the festival) had actually lost their jobs or had no formal offer of employment after the festival ended. Thus based on the official estimate of 130 million migrant workers, the figure of 20 million was born. In fact estimates for the actual umber of migrants working in Chinese cities range from 120 to over 230 million and a host of other factors could also influence the survey’s effectiveness.  The real figure then could be twice as much as 20 million or lower. The lack of transparency in Chinese statistics and the continued use of excessive state secrets laws means that we simply do not know.

Needless to say, all this makes for a tense situation especially as the funds from local authorities to pay at least some compensation for workers begin to be more difficult to obtain. The large numbers of factory closures thus far have not been without violence. In November, for instance, hundreds of workers at a Dongguan toy factory were reported to have rioted and clashed with up to a thousand police, smashing up offices and overturning police cars in a dispute over severance payments. [NOTE 13]

In another incident the same month, hundreds of people smashed vehicles and destroyed computers and other equipment at the Kai Da toy factory in Dongguan in a dispute over severance payments for some 80 migrants out of almost 600 workers laid off. Five workers were reportedly injured and hospitalized. [NOTE 14]

There was also a case of a worker setting himself alight in front of his Hong Kong supervisor at a factory in Shenzhen in February. The sacked migrant worker had been refused severance payment by the Hong Kong-invested Welluxe Technology and Manufacturing. [NOTE 15]

However most foreign journalists covering the news of the outside are quick to ramp up the fears and play down one of the most often heard comments from local observers, namely that in general the workers have been remarkably resilient and subdued. Employers have also commented that so far workers have been very reasonable and law abiding.  Indeed one interesting aspect is that many of these migrants have in fact never been through a recession. Many, especially the more recent younger migrants aged 16 -20 have only known a labour market where it has been relatively easy to find work. Many believe that after a few months ‘rest’ in their home villages or towns they can come back and find other employment. This was of course especially the case before Chinese New year. It will only be later in the year when weeks of unemployment turn not months that these migrants realize that the situation may be more serious than they had first thought.

For more on what the workers think read Portraits of workers without Jobs

Blaming it on labour laws: increasing impunity for employers in the name of economics

Most media reports, both Chinese and foreign harp on the theme of the Labour Contract Law having queered the pitch for businesses, giving the impression that the law was greatly to blame for the factory closures. The media appears to have allowed itself to be cleverly manipulated by the factory bosses and their friends among the Chinese authorities.

Although in the face of so many cases of factory bosses decamping and leaving behind huge debts, unfilled orders and unpaid wages to jobless workers, the Guangdong authorities brandished the threat of the use of criminal law, signs were that prosecutors would not use it. In fact it looked as if it was the other way round - in early January it was reported that the Guangdong procuratorate had instructed officers to exercise caution in proceeding against white collar criminals so as not to disrupt normal production and development. [NOTE 16]

There seems to be willing collusion in denying workers their dues. At a legal aid centre in Shenzhen, an official, Zhang Zhiru, said the authorities had grown more lax about enforcing labour laws. A manager of a 700-employee textile factory in Dongguan was quoted as saying of government officials' attitude: “They don't say you don't have to follow the labour laws, but now it's 'one eye open, one eye shut'.” [NOTE 17]

In Shenzhen, the Dagongzhe Migrant Workers Rights Centre expressed concern over tricks used by employers to circumvent the labour laws, such as reducing overtime payments, using doctored contracts left either blank or incomplete or drafted in English. [NOTE 18] On the one hand the labour laws are ignored but on the other they are used as an excuse by factory bosses for devious practices.

A posting on Chinalawblog by an exporter said almost all supplier factories used the labour contract law as an excuse to raise prices arbitrarily. When pressed harder, they go back to pre-LCL pricing, the exporter added, speculating that the law was not as severe a cause of rise in costs as exporters were led to believe. [NOTE 19] If this is the experience of a knowledgeable exporter, the fate of assembly-line workers who may not be aware of these intricacies an only be imagined.

A commentator, You Nuo, writing in China Daily, noted there had been signs of failing business in Dongguan for quite some time, with internal strife that affected business policies and shop-floor management. If that were the case the closures should not be attributed to the economic crisis that began in the US, he said and added: “It would be a case of management failure, perhaps one in which some company leaders stole the revenue that should have been shared by workers, shareholders and suppliers.” [NOTE 20]

Indeed in fact it is accepted in the region that in fact many closures antedated the coming into force of the Labour Contract Law.  Economists have noted that the slowdown in China began in the second half of 2007, well before the onset of the global economic crisis. China is unlikely to achieve double-digit growth rates in the near future because of large quantities of unsold real estate. [NOTE 21]

It also faces serious challenges, particularly regarding unemployment. This is nothing new in itself as there has been a major shortfall in the number of jobs available for the new entrants to the labour market but in 2008, at the situation is made all the more serious given that people estimate that at least nine million migrants were laid off in coastal areas and industries and that (by some estimates) a total of up to 36 million non-agricultural workers lost their jobs.

Nearly a third of the 5.6 university graduates failed to find jobs. The economists Bottelier estimated that in 2009, up to 53 million non-agricultural workers would compete for six or seven million jobs in the non farm sector and that by the year end, up to 50 million workers could be unemployed. [NOTE 22] In other words his projection seems to be in consonance with that of Victor Shih noted above.

Chinese officialdom's response to the crisis

So what are the authorities doing about it? Given the tendency on the part of some authorities at various levels to treat workers, especially migrants, their wages and benefits – or what passes for benefits and protections – as a problem and not as a valuable asset  it is not surprising that many of the measures actually tend towards further hurting workers' interests.

The authorities, central and local, have reacted by not only relaxing the application of laws as seen above but by putting in place security measures to prevent workers from staging large scale protests. In addition they have launched stimulus measures whose details are still too murky to see whether they are capable of doing anything to substantially alleviate the situation of workers or boost employment.

Central Chinese authorities have permitted localities to freeze minimum-wage levels and to reduce or even suspend employers' social-insurance contributions. In December 2008 companies facing alleged financial difficulties could ask to delay the payment of social insurance for its workers. In early 2009, regulations were revised in some localities allowing different forms of working hours and wage calculations (allowing companies to calculate overtime over long periods such as a year to allow for slack and busy periods) which had been earlier slated for removal. As if that were not enough, the vice mayor of Dongguan, Jiang Ling, said employers hoped the central government would also suspend altogether the application of the Labour Contract Law, and that his office had relayed the request. [NOTE 23]

The ACFTU has been playing a problematic role in this. One the one hand making occasional calls for the protection of workers in the crisis while on the other wholeheartedly following the employers and the government’s policy directions. In Guangdong for example the trade union encouraged the ‘humane’ policy of long term unpaid holiday’s and announce din November 2008 the cancellation of collective wage negotiations.

See for example Guangdong Provincial Trade Union suspends collective wage negotiations

Thus workers in many places are now faced with employers who refuse to pay them their dues, confident in the knowledge that governmental authorities would be more likely to be on the side of bosses and not employees. The latter, on the other hand, no longer have traditional channels such as work units to appeal to. Mao Shoulong, professor of public policy at Renmin University in Beijing is quoted as saying: “In the past, when workers met problems they resolved them within their 'work units',” but that today “the systems have changed and people look for external means. But labour arbitration is expensive and time-consuming and people want to solve their problems quickly.”

In other words, they have little choice but to take to the streets or register their protests in other ways that draw the attention of the authorities or at the very least vent their own frustrations and anger. But such recourse to what in China is invariably regarded as illegal activity, is met by the full force of the state's elaborate coercive machinery.

See ACFTU in a time of crisis: Back to the old ways?? for more details of the actions of the ACFTU and its provincial branches

The Spectre of worker unrest and social chaos

Chinese authorities have openly expressed fears that masses of unemployed workers could pose threats to “social stability” and have urged public security officials to be on guard. In mid-February, Sun Chunlan, vice-chairperson of the All-China Federation of Trade Unions, was reported to have said that police taskforces had been sent to various regions to "understand the situation with regional social stability." [NOTE 24] “We need to keep a close lookout for foreign and domestic hostile forces using the difficulties encountered by some companies to infiltrate and undermine the ranks of migrant workers,” he said. [NOTE 25]

In view of the concerns that the army of laid of workers could cause unrest, more than 3,000 public security directors are to be trained by mid-June, according to the Ministry of Public Security. [NOTE 26]  Training might well be most essential given the capacity for overkill that Chinese security forces have displayed many times in the past decades. In fact, the Communist Party seems to be aware of this danger, signaling what seems to be an advice to avoid knee-jerk recourse to overwhelming protestors with violence, thereby fuelling the fires.

“If mass incidents happen, all officials must go to the frontline and try to persuade people face-to-face,” the director of the party's central leading group on rural work, Chen Xiwen was quoted as saying in early February. “They cannot hide and push police to the frontlines. The police cannot be deployed unless there are truly unfortunate situations where people are beating, attacking, robbing and burning.” [NOTE 27]

China's top leadership has not contented itself with issuing orders to lower level authorities on how to handle unrest, however. One of the topmost leaders, Vice-President Xi Jinping, has reportedly been given charge of a major public security campaign to forestall or respond quickly to possible social unrest. He is to be assisted by another party Politburo Standing Committee member Zhou Yongkang, as well as State Councillor Meng Jianzhu. [NOTE 28]Politburo Standing Committee members Wu Bangguo and Jia Qinglin, meanwhile rejected calls for Western-style democracy, thus ruling out the possibility for workers to voice their concerns or protests through political means.

As in many other countries around the world authorities in China are happy to use workers to build up the economy and at the same time to demonize their potential as a catalyst of social destruction in order to avoid real discussion of the crisis and attempts to alleviate the problems behind the unrest. By playing up the potential for unrest, authorities can at the same time enhance urban resident’s fear of rural migrants (divide and rule) and give a warning to workers that protests will not be tolerated while laying the foundation down for the inevitability of violent repression.

Re-training and stimulus packages

In addition to security personnel and police training, one of the measures the education ministry has come up with to quell unrest is to step up ideological and political education for university students. [NOTE 28]The ministry also aims to provide 90 million training courses for adults, many of them related to rural skills transfers. [NOTE 29]

And then there is the much talked of 400 billion Yuan stimulus package, which has been mentioned ad nauseam in reports concerning China's economy for the past several months. However, little has been revealed as to the make-up of the package nor of the intended beneficiaries. Some Party elders reportedly wrote to President Hu Jintao and other leaders endorsing the investment package to invigorate the economy and adding: “At the same time, we are extremely worried that the privileged and the corrupt will seize this opportunity to fatten themselves, damage the relationship between the party and the people, and intensify social conflict.” [NOTE 30]

Senior Party members also reportedly called for checks and balances in the recovery plan. Party official Du Guang reportedly said the call for democracy had become more relevant during the downturn, voicing scepticism over measures to supervise stimulus spending: “How much of it will really go towards responding to the economic downturn?” This was echoed by Shanghai lawyer Yan Yiming, who threatened to sue the National development and Reform Commission unless it published an inventory of spending items. [NOTE 31]

Du Guang criticised the focus on public works projects rather than on social services: “You have to look at how to expand demand in the long term. Social spending is more important than building railways, expressways and other basic infrastructure. There's not enough going toward education and health care.” [NOTE 31] Xu Sitao, chief representative for China with the Economist Group and former chief economist of Industrial & Commercial Bank of China (Asia) agreed that capital-intensive projects were unlikely to create many jobs and that such investment may force banks to take on non-performing loans. He pointed to the lack of a social safety net and concerns about education, training, health care and security for the aged, adding: “The reality is that China has adequate fiscal resources to mitigate the misery of the urban poor and millions of migrant workers who lost their jobs. Beijing's challenge remains in ensuring quality growth that can only be achieved by more efficient allocation of savings.” [NOTE 32]

The concept of encouraging domestic consumption is also flawed given that most workers have been facing years of wage stagnation and are currently looking at a drop in the absolute value of their wages. For many migrants the minimum wage was the maximum except through excessive overtime they were able to earn more. Most migrants have little spending power preferring to save their money to build adequate houses and opportunities in their villages as well as pay for medical treatment, education and the care of their parents in the privatised and marketised education and medical systems China now has.

The share of wages in national income was estimated to drop from 53 percent in 1998 to 41 percent in 2007 in tandem with similar drops in other countries with the rise of neo liberal policies.  In addition there is no long-term vision or consideration for the environment. And generally the plans lack an overall strategy according to many economists. Such strategic thinking by the Chinese leadership is unlikely, according to one Beijing-based political scientist Russell Moses. “This is a government of reaction and response, not a government rethinking in terms of large, strategic efforts at reform,” he said, adding that the authorities were “dealing with the symptoms, not the causes of unrest. They don't want further unrest, but there is no consensus on how to prevent further outbreaks.” [NOTE 33]

What needs to be done?

In the above discussion, there are few mentions of China's sole trade union body, the ACFTU. And that too in the context of a leader's stern warning that “hostile forces” could “infiltrate” and undermine worker, taking advantages of “difficulties” in some companies.  The statement stood out for its breathtaking insensitivity to workers' genuine problems in the face of multiple incidents of company bosses refusing to pay workers their dues, arbitrarily dismissing masses of people on their payroll, undermining China's labour laws or absconding, leaving behind unpaid and unemployed workers, debts and unfilled orders.

In addition, as the labour rights group, China Labour Bulletin editorial pointed out, Sun Chunlan's comments could do tremendous damage to workers' legal rights as it could polarise industrial disputes, fueling suspicion, hostility and disputes among labour, management and local governments. Secondly, if her call were adhered to, the ACFTU would go further down the role of dependency on managements, the government and the Party, especially the security forces. Thirdly, it could scare off non-governmental organizations, lawyers and the media from trying to help workers, fearing the “hostile forces” label being stuck on them by unscrupulous local bosses. [NOTE 34]

To be sure,  Sun Chunlan also said the official trade union would extend aid to more than 10 million migrant workers, in the form of job training or "living assistance." [NOTE 35] A clear case of adding insult to injury in a country where the working force numbers in hundreds of millions, a significant percentage of it consisting of migrants. Vocational training and unspecified living assistance is not the kind of band aid expected of a union outfit which boasts tens of millions of members.

The ACFTU held its five-yearly congress in October 2008, when it was already quite clear that factories were shutting up and down the country, especially in the coastal areas, throwing tens of millions of people out of their jobs. But the congress was a sedate affair and the ACFTU chairman Wang Zhaoguo unveiled the concept of “trade unions with Chinese characteristics”. [NOTE 36] Given that socialism with Chinese characteristics has widely been equated with free market reforms under a one-party state, the latest slogan can hardly bode well for workers, who are forced to take to the streets to vent their frustration.

See also IHLO : Economic crisis and rising joblessness overshadow the 15th Congress

According to ACFTU's submission to the UN Human Rights Commission's Universal Periodic Review session held in February, Chinese unions “endeavour to safeguard workers' rights and interests.” The documents highlighted five tasks of Chinese unions: Safeguarding workers' right to join and organise trade unions, defending workers' right to collective negotiation, ensuring workers' democratic and political rights, actively participating in mediation of labour disputes, as well as safeguarding workers' labour and economic rights If indeed the ACFTU were to take these tasks seriously, that would greatly alleviate the plight of tens of millions of workers in China today.

See Universal Periodic Review of China: An opportunity for genuine debate on progress? For more details of the ACFTU submission and the submission from the ITUC (drafted by IHLO)

The Chinese central authorities should also shed their fear of publicity for labour disputes. Their continuing gag on reporting of anything deemed “unrest” means that local officials get away with barring foreign as well as domestic media coverage of industrial disputes even if the employers are indisputably at fault and large numbers of workers have been left high and dry.

Although a leading official said during the NPC session in March that no change would be made to the Labour Contract Law as it had nothing to do with the widespread failures of export-oriented firms, [NOTE 37]the very fact that such an idea should have been considered at that level shows to what extent Chinese officialdom has workers' interests at heart.

Reports that authorities have sought or even been given leeway to freeze minimum wage levels, suspend social insurance or to take a lenient approach to white collar crime are all disturbing to say the least. Such concessions to localities and businesses could undermine trust in the still-developing rule of law as suggested too by Andreas Lauffs, from the law firm of Baker & McKenzie who focuses on Chinese labor issues. [NOTE 38]

From a macroeconomic perspective, the Chinese government has to realise that helping reduce workers' wages is a recipe for recession. As the Financial Times pointed out, holding down wages does nothing to boost domestic consumer spending which has emerged as a major concern around the world. “The steady stream of factory fodder has helped suppress wages in most regions. As a result consumer spending has wilted from about 45 percent of GDP in the mid-1990s to a shrunken 35 percent today,” the Financial Times'  has observed, advising simply that China should raise wages to stimulate demand. [NOTE 39]

While China's strategy of going on a buying spree abroad, acquiring access to precious energy resources may be farsighted (China has spent tens of billions of dollars in acquiring stakes in companies or lending money to governments abroad), [NOTE 40] it would be equally farsighted if it spent some of its cash reserves on its own population, on helping workers who are the mainstay of the economy. The authorities have to realise that tens of millions of workers, a few of whom are third generation migrants from rural areas and are no longer able to return to tilling the land, have no choice but to offer their services and whatever skills they possess to non-farm activities. Moreover, Chinese planners would also have to reorient development from concentration on low-value exports. As even the right wing Hong Kong think-tank, the Bauhinia Foundation pointed out in respect of the Pearl River Delta, China needs to upgrade industries now dominated by export-processing, which is “relatively low in the industry chain and value chain, with a high degree of homogeneity, low technology content and little added value.” [NOTE 41]

To conclude, the best way of facing up to the global recession, the enormity of joblessness and the impunity practiced by many factory bosses in some cases in collusion with local authorities, is for the Chinese authorities to respect in practice their own statements with regard to upholding the right of workers to join and organise trade unions, adopt labour friendly economic policies which would ultimately benefit the whole economy and use their considerable financial reserves to that end.

What the current situation needs the least is alarmist talk of hostile forces fomenting trouble among workers. The Chinese authorities would do well to eschew invoking such bogeymen and focus instead on real measures of pump-priming the economy.

IHLO

April 2009