China’s National Development and Reform Commission (NDRC) recently reported that over 65,000 previously profitable Chinese companies had collapsed during the first half of 2008. Many more companies are facing restructuring. The Chinese government is trying urgently to stabilize the economy, since it believes large-scale unemployment may bring instability to the country. For example, in October 2008, when two large factories in Guangdong Province declared bankruptcy, over 7,000 workers were left jobless and unpaid for the last stretch of their employment. These workers protested for two days, demanding back pay. To resolve the situation, the local government chose to pay the wages on behalf of the bankrupt factories. The amount paid totaled over 24 million yuan (about $3.5 million USD).
In its ongoing effort to battle the economic slowdown, the government of Beijing has adopted a new method. As an incentive for firms to employ laid-off workers, the municipal government is now offering to pay a subsidy for each laid-off person hired. Companies willing to give jobs to the unemployed will be eligible to receive up to 10,000 yuan ($1,462.65 USD) per hiree per year for the next three years or more. The subsidy may last up to five years for firms that choose to hire people who are disabled, from low-income households, or nearing retirement age.
Essentially, the Chinese government has made job creation and retention its top policy priority for 2009. Investment projects that can generate jobs will be strongly supported by the government. In particular, the government has taken special measures to assist large employers. For these employers, government officials are taking a wide array of measures including increasing bank loans, raising export tariff rebates, and providing more favorable taxation and financing. In addition, they are providing more vocational training for laid-off workers to increase chances for re-employment.
In this new economic environment – whose full affect on the Chinese economy is still unclear – foreign firms should be aware of the resulting shift in HR incentives. In particular, working to avoid staff cuts, where feasible, may win foreign companies more favorable government treatment in other ways.
