The global downturn in the economy is not leaving China untouched. On February 1st, China’s central government issued a statement warning that 2009 could be “possibly the toughest year” since the Asian Financial Crisis more than a decade ago. China’s growth fell below an annualized rate of 7% during the fourth quarter of 2008. This is well below its averages of more than 10% annual growth over the past several years.
Some of the first people to feel the pinch of the economic slowdown have been China’s more than 130 million migrant workers. These individuals make up much of the workforce at China’s local and foreign-owned factories. Experts estimate that about 25 million of them have now been laid off. Rather than return home to their rural villages, many of these workers have taken to the streets in the cities in protest. During the month of January, there were hundreds of strikes up and down China’s coast, where the majority of foreign-owned firms have established their manufacturing facilities. In one case in Shanghai, more than 2,000 workers rioted outside the Singapore-owned factory from which they had been laid off. While larger firms have cut their workforce and slowed production, many smaller ones have been forced to close their doors completely.
In an effort to stabilize the volatile situation, Chinese officials in many areas have been dispatched to meet with factory managers. Although no official announcements have been made, there are reports of offers for subsidies and tax breaks to companies that agree to freeze layoffs or hire back previously laid-off workers, even at reduced wages. Union involvement has also risen significantly as the country’s state-run All China Federation of Trade Unions (ACFTU) gains support from the Chinese government and coverage by the media.
Many foreign firms should hold on to their workers to the extent financially feasible. This will ultimately cause less friction with unions, which could potentially be even more damaging than the slowdown of the economy. Many economic experts predict that, although it will be hit hard, China will also be one of the first Asian countries to recover from the recession. Recent Chinese government actions, such as the US$585 billion stimulus plan announced recently, have also helped to ease the tension.
