Will the Economic Downturn Will Increase Social Instability in China? My take.

Monday, January 12, 2009 9:14
Posted in category The Big Picture

Following the receipt of Wang Tao’s report, and after reading Victor Shih’s email, I took a bit of time to write down some thoughts in an email to victor (which I have copied below).

Not an alarmist by nature, I believe that Victor response does resonate with me more than Wang Tao’s, however in general I still do not see the level of risk that Victor sees.

It is important to say that I think for several reasons:

1) I think that to date the central party has done a lot to cushion the blow of the recent factory closures.  There have been a lot of people laid off, but a lot of government programing, payments, and promises seem to be having the intended effect

2) The central party, through the union, is working to stop further layoffs, and it is clear that the bank credit taps are open for any firm who really needs to keep people employed.

Where I think Wang Tao fails is that she fails to account for the externalities of the economic issues that the migrant communities will face:

1) migrant populations tend to stick together and layoffs will result in concentrated numbers returning home together.

Where I see this as important is that having 15 or 50 million layoffs that are interdispursed among 10,000 communities offers one set of economic and social realities, where as these layoffs occurring among 500 offers a vastly different set of constraints.

I think Wang Tao has budgeted for the former, where the government is more concerned about the latter.

2) migrant communities tend to be concentrated within the major cities, and operate in a microeconomic environment.  Schools, stores, restaurants, and factories are often found in a closed loop system, and as these closures occur the wider community is impacted.

3) victor’s observation that these layoffs are largely of abled bodied men/ women is another factor, and an important one, and besides the loss of income, many of these members are working to support others and are likely to grow vocal about (1) lack of employment opportunities (2) poor conditions of the rural (3) gov’t corruption and (4) environmental degradation

Wrap up

Personally, I am not a big believer at this point that the risk of widespread (uncontrollable)  unrest is likely, however, I would say that the localized risk is now much greater than before:

1) At the factory – when a factory is shutdown, executives of the company and remaining assets are at risk.  We previously used to see this when firms were purchased, and labor was afraid of downsizing. Through negotiation and reassurances, many of these events were ended without significant damage or bodily harm.  However, as these factories are being closed, and there is little room to negotiate that point, the damage that is being inflicted on these factories is significant… and to avoid bodily harm, the managers are leaving under the cover of darkness

2) At city level – Where the real risk is at the city level is when laid-off workers feel they are not begin treated well.  They will become more and more vocal, which is not a problem in itself.  however, if there are rumors/ proof that the system  is somehow corrupt, then the situation could escalate quickly

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2 Responses to “Will the Economic Downturn Will Increase Social Instability in China? My take.”

  1. Hello says:

    January 12th, 2009 at 11:17 am

    Ever heard about the concept of critical mass?

    China is reaching it right now.

    I think it’s answering your doubts.

    2009, keep you eyes and you mind open.

  2. ian channing says:

    January 13th, 2009 at 1:04 am

    Hello, I’ve heard of critical mass. What evidence is there that it is being reached in China? The only chain-reaction disputes I have of read in recent months have been taxi driver strikes, which spread to several cities though it was mainly industry-specific grievances. Otherwise unrest all seems very localised and smallscale. What am I missing?