The Economic Downturn Will Increase Social Instability in China? Experts Disagree.

Sunday, January 11, 2009 0:48

With little doubt in anyone’s mind that the impact of the global crisis impacting China, the focus has changed.  It has become a guessing game of what the impact points will be, and how severe those impacts will be.

One of the more interesting questions relates to the impact of layoffs.  We began hearing about layoffs in October through the toy factories, and over the last 6 weeks the layoffs have becme more frequent.

Frequent enough for journalists to pick up on th fact that millions of migrant workers were returning home early, and frequent enough for some to debate what the millions of unemployed would do when they returned home.  Would they simply take an extended Chinese New Year?

Or would they stew and start causing trouble…  leading economists Wang Tao and Victor Shih addressed this issue head on.

Wang Tao of UBS in her latest report Will job losses lead to social unrest? argues :

The severe unemployment outlook has increased the risk of social unrest significantly. Most of the job losses are expected to occur among migrant workers, who are not covered by any formal social safety net, and are often owed back pay up to a year. Migrants have few formal channels to be heard and get compensated, and localized social unrests may be hard to avoid.

Nevertheless, we think large-scale unrest that threatens general social stability and overall investor confidence is unlikely. The scale of job losses, as large as it might be, is not really unprecedented in China.

For Wang Tao, the reasons that any unrest will be minimized are simply (1) Even at 15 million (UBS estimate), the numbers are not statistically large enough (2) History – 10 years ago the large numbers of SOE workers laid off did not go out and riot, so therefore neither will the migrant populations of today (3) that because migrants have land, they will keep busy (4) the government can fund migrant relief in a way that SOE workers never saw (5) migrants are unorganized

Points that Victor Shih, of Northwestern, addresses with in his RGE Monitor article“Will job losses lead to social unrest?” My Take:

The arguments sound quite reasonable:
1.  Job losses will only be about 15 million, or 3.5% of non-agricultural employment.
2.  Migrant workers, who are hit the hardest, can’t organize effectively anyway.
3. China weathered the last wave of unemployment, which saw unemployment level at around 35 million, with little difficulties in the late 90s.  And, China had less money back then.

Victor however has a vastly different take on the size of the problem:

I find the 15 million figure highly unlikely, even for now, much less for 2009.  A Ministry of Labor and Social Security official revealed recently that some 10 million migrant workers have already been laid off and returned to the countryside.  It seems extremely optimistic to say that total unemployed migrant workers in 2009 will be 15 million.

In fact, Victor points out that the current layoffs are already likely higher than the 15 million, and that when you take into consideration that HALF of college graduates this year may come out without a job… China could see more than 30 million unemployed people.. possibly 50 million

which would significantly impact the ability to subsidize the peace and quiet:

if the unemployed force reaches 50 million, the Chinese government would only have to pay (50 million*100dollar*12 months) 60 billion USD (408 billion RMB).  That is a substantial sum, but China can surely handle it for two to three years, suffering perhaps slightly lower credit ratings.

So, while not a small some of money, it is a sum that the government could afford (in a vaccuum) .

For victor though, there is something that he feels Wang Tao fails to appreciate:

unlike the layoffs in the 90s, which mostly affected middle-age or elderly SOE workers, the current wave of layoffs affects a young and vibrant cohort most capable of carrying violent collective action against the state.

A very important point, and the basis for an interesting dialogue between two experts.

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4 Responses to “The Economic Downturn Will Increase Social Instability in China? Experts Disagree.”

  1. Charles Frith says:

    January 11th, 2009 at 10:00 am

    I’d think the likelihood of social unrest is greater in the U.S. when the impending collapse of the dollar realises itself. However neither of the experts above will be held accountable for their predictions because nobody actually knows.

    I would add that the ability for people to self organise through mobile phones (common even with migrant workers) is unprecedented and yet another crucial factor that one would need to factor in when making wild predictions. These same people were making predictions on more profit not so long ago.

    Why would I hold their views as credible?

  2. Duncan says:

    January 11th, 2009 at 7:12 pm

    Part of the problem is that there’s a lack of clarity over whether these are net job losses or simply the number of positions gone. I know officials were privately kicking around a figure of 20m or so people laid off nationally in 2008 late last year, so 15m on face value does look very optimistic from that perspective, but as a net figure after new job creation it doesn’t look so crazy.

    On the social stability front, it’s true as Wang Tao says that most of these incidents are small scale. But every extra one of these protests increases the risk that someone badly mishandles it, causing bloodshed that might spark wider public outcry. And as the taxi-drivers showed there’s a growing tendency towards copycat unrest, which could see a movement spread rapidly, despite the fact local authorities still tend to handle such disturbances very differently (partly because of the different levels of fiscal resources available to them).

  3. Aimee Barnes says:

    January 13th, 2009 at 3:52 pm

    Great post; this downturn will certainly test out some of the more popular theories surrounding China’s current migrant population, many of which are a) guang gen (single young males who have little hope of finding a wife) and/or b) laborers who also participate in the sex industry, either as moonlighters or patrons. In any case, there appears to be wide assumption that these groups will inevitably lead China down a road of social unrest (among other things) whether the economy had remained strong or not. Gender imbalance and lack of worker’s rights are probably two of the strongest factors- a bad economy just adds fuel to the fire.

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