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Looks like the capitalist-roaders may soon feel the heat!
As China's Losses Mount, Confidence Turns to Fear
Officials Use Bailouts to Forestall Unrest
By Ariana Eunjung Cha
Washington Post Foreign Service
Tuesday, November 4, 2008; A01
SHENZHEN, China -- When Chong Yik Toy Co. went bankrupt, the bosses fled
without meeting their payroll and angry workers took to the streets in
protest. Less than 72 hours later, the local government came to the rescue.
Armed with bags full of cash totaling half a million dollars, accountants
began distributing the money so the 900 former employees would have
something to get by on. The Chinese officials who made the emergency
payments on Oct. 21 called it an "advance," part of a "back-pay insurance
fund."
But the reality was obvious to everyone: It was a government bailout.
In the initial weeks of the global financial crisis, Chinese officials
resolutely declared that they were not significantly affected. But now, as
factory closings, dire corporate earnings reports and stock market losses
continue to mount, the Communist Party's confidence has changed to another
feeling entirely: fear.
For the first time in the 30 years since China began its capitalist
transformation, there is a perception that the economy is in real trouble.
And for the Communist Party, the crisis is not just an economic one, but a
political one. The government's response offers a glimpse into its still
ambiguous relationship with capitalism -- relatively hands-off in good
times, but quick to intervene directly at the first signs of a downturn in
order to prevent popular unrest.
In recent weeks, local governments have set up special loans for ailing
companies and initiated severance payments for workers who have already lost
their jobs. Officials are candid in acknowledging the efforts are needed to
head off what they call "mass incidents" -- the Communist Party euphemism
for protests.
The economic devastation has been worst in the industrial centers of
southern China, areas that had thrived in recent decades by producing the
electronics, clothing, toys and furniture that fill retail stores in the
United States.
With export orders falling because of the global slowdown and rising raw
material and labor costs, more than 68,000 small companies nationwide
collapsed in the first half of 2008 and about 2.5 million jobs in the Pearl
River Delta region may be lost by the end of the year, according to
government and industry estimates.
As the economy has soured, dissatisfaction has grown: Since mid-October,
there have been dozens of labor protests involving thousands of workers at
major exporters, including several publicly listed companies.
Meanwhile, government figures released last month show that the gross
domestic product grew by 9 percent in the third quarter -- robust by almost
any standard, but not in China. Here, the figure represented the slowest
growth in five years, and was dangerously close to 8 percent. That's the
level at which economists say China needs to grow in order to keep
generating enough factory jobs to maintain stability in the labor market, as
millions of peasants continue to pour into Chinese cities in search of work.
At the same time, some of China's most revered companies, whose growth once
seemed limitless, have reported surprising losses in the past few days. Air
China, the nation's biggest international carrier, posted its first loss in
seven quarters because of declining passenger numbers and wrong-way bets on
fuel prices. Bank of China, the nation's largest foreign-exchange lender,
said that as credit-market losses went up, its profit growth went down to
its slowest in two years.
China's leaders have made a variety of moves to try to stabilize the economy
- -- three interest rate cuts in six weeks, new export tax rebates, reduced
costs for home buyers, and billions spent on infrastructure. But any hope
that a strong Chinese economy -- the single largest contributor to global
growth -- would offset the slowdown elsewhere is gone.
The government's efforts to prop up individual companies are a radical move
for a country that in recent years has tried to move away from its "iron
rice bowl" philosophy, in which jobs and wages are guaranteed for life, and
transition to a more sink-or-swim-style capitalism.
In the coastal province of Zhejiang, the local government is setting up a
special $9.5 million loan fund to help companies such as the deeply indebted
Feiyue Group, which exports sewing machines and suitcases. In Jiangsu
province, the government extended unemployment benefits to migrant workers
laid off from ailing factories; these workers had previously been shut out
of public services because they don't have residency cards.
The Guangdong provincial government in the south is scrambling to set up a
special fund to compensate laid-off workers in order to "protect against
some of the financial and social problems caused by such closures."
Eddie Leung, chairman of the Dailywin Group, which makes Movado and Anne
Klein watches, said Guangdong officials also seem to be backing down from
efforts to transform the area from a manufacturing hub into a high-tech and
services center. In recent years, the government had been content to see
polluting factories and sweatshops go out of business to make room for
companies higher in the value chain. Now the government seems inclined to
help them survive.
Chong Yik Toy is but one of a number of bankrupt companies whose employees
have received payoffs from the government.
In the eastern city of Wujiang, nearly 1,000 workers from bankrupt Chunyu
Textile Co. received four months' salary on Oct. 27 after they swarmed the
area's four main roads to draw attention to their cause. After more than
1,000 workers for home appliance maker BEP International Holdings gathered
outside the factory to protest, district officials gave them $44 each late
last month. The employees were also allowed to continue living in the
defunct factory's dormitories for free. The same week, the government
offered three months' back pay to the 900 workers at Gangsheng, an
electronics supplier, after they staged a protest at a shop near their
factory.
In the neighboring city of Dongguan, the local government handed out about
$3.5 million on Oct. 21 to the employees of Smart Union -- which sold its
toys to Mattel, Disney and Hasbro -- after the 7,000 workers staged a
strike.
Hu Weicai, 38, who worked with the plastic molds used to make electronic
toys, said employees became nervous when the owners slipped three months
behind on salary payments. The workers occupied the factory and the
surrounding streets until government officials promised them they would be
paid.
"The government was very afraid when they saw what was happening. What the
government fears most is workers making trouble. They paid us to stabilize
our moods," Hu said.
But employees said a one-time payment will provide only a temporary reprieve
from the unrest if the workers are unable to find new jobs.
Jia Yingge's husband, a guard, received a little less than his monthly
salary of $300. With no employment prospects in sight, she worries about how
the couple will support their newborn son.
"If you mention this company's name, no one wants to hire you because they
know about the blockade and now we have a bad reputation," Jia said.
When Liu Fangping, 38, was paid, the government took his fingerprints with
red ink -- presumably to make sure the right person was receiving the
payment. But Liu noted that the prints could also be used to pinpoint
troublemakers who continue to protest despite the handouts.
"I don't think the government is doing its best to protect the rights of
workers," Liu said, adding that officials seemed more interested in
controlling unrest than helping individual workers.
Indeed, signs posted at the gates of closed factories did not direct former
workers to places where they could get help, but instead displayed a
warning. In large black characters, they reminded workers that they could be
detained for stirring up unrest, for disobeying security officials or even
for "unlawful gathering."
Researchers Crissie Ding and Liu Liu contributed to this report.
As China's Losses Mount, Confidence Turns to Fear
Officials Use Bailouts to Forestall Unrest
By Ariana Eunjung Cha
Washington Post Foreign Service
Tuesday, November 4, 2008; A01
SHENZHEN, China -- When Chong Yik Toy Co. went bankrupt, the bosses fled
without meeting their payroll and angry workers took to the streets in
protest. Less than 72 hours later, the local government came to the rescue.
Armed with bags full of cash totaling half a million dollars, accountants
began distributing the money so the 900 former employees would have
something to get by on. The Chinese officials who made the emergency
payments on Oct. 21 called it an "advance," part of a "back-pay insurance
fund."
But the reality was obvious to everyone: It was a government bailout.
In the initial weeks of the global financial crisis, Chinese officials
resolutely declared that they were not significantly affected. But now, as
factory closings, dire corporate earnings reports and stock market losses
continue to mount, the Communist Party's confidence has changed to another
feeling entirely: fear.
For the first time in the 30 years since China began its capitalist
transformation, there is a perception that the economy is in real trouble.
And for the Communist Party, the crisis is not just an economic one, but a
political one. The government's response offers a glimpse into its still
ambiguous relationship with capitalism -- relatively hands-off in good
times, but quick to intervene directly at the first signs of a downturn in
order to prevent popular unrest.
In recent weeks, local governments have set up special loans for ailing
companies and initiated severance payments for workers who have already lost
their jobs. Officials are candid in acknowledging the efforts are needed to
head off what they call "mass incidents" -- the Communist Party euphemism
for protests.
The economic devastation has been worst in the industrial centers of
southern China, areas that had thrived in recent decades by producing the
electronics, clothing, toys and furniture that fill retail stores in the
United States.
With export orders falling because of the global slowdown and rising raw
material and labor costs, more than 68,000 small companies nationwide
collapsed in the first half of 2008 and about 2.5 million jobs in the Pearl
River Delta region may be lost by the end of the year, according to
government and industry estimates.
As the economy has soured, dissatisfaction has grown: Since mid-October,
there have been dozens of labor protests involving thousands of workers at
major exporters, including several publicly listed companies.
Meanwhile, government figures released last month show that the gross
domestic product grew by 9 percent in the third quarter -- robust by almost
any standard, but not in China. Here, the figure represented the slowest
growth in five years, and was dangerously close to 8 percent. That's the
level at which economists say China needs to grow in order to keep
generating enough factory jobs to maintain stability in the labor market, as
millions of peasants continue to pour into Chinese cities in search of work.
At the same time, some of China's most revered companies, whose growth once
seemed limitless, have reported surprising losses in the past few days. Air
China, the nation's biggest international carrier, posted its first loss in
seven quarters because of declining passenger numbers and wrong-way bets on
fuel prices. Bank of China, the nation's largest foreign-exchange lender,
said that as credit-market losses went up, its profit growth went down to
its slowest in two years.
China's leaders have made a variety of moves to try to stabilize the economy
- -- three interest rate cuts in six weeks, new export tax rebates, reduced
costs for home buyers, and billions spent on infrastructure. But any hope
that a strong Chinese economy -- the single largest contributor to global
growth -- would offset the slowdown elsewhere is gone.
The government's efforts to prop up individual companies are a radical move
for a country that in recent years has tried to move away from its "iron
rice bowl" philosophy, in which jobs and wages are guaranteed for life, and
transition to a more sink-or-swim-style capitalism.
In the coastal province of Zhejiang, the local government is setting up a
special $9.5 million loan fund to help companies such as the deeply indebted
Feiyue Group, which exports sewing machines and suitcases. In Jiangsu
province, the government extended unemployment benefits to migrant workers
laid off from ailing factories; these workers had previously been shut out
of public services because they don't have residency cards.
The Guangdong provincial government in the south is scrambling to set up a
special fund to compensate laid-off workers in order to "protect against
some of the financial and social problems caused by such closures."
Eddie Leung, chairman of the Dailywin Group, which makes Movado and Anne
Klein watches, said Guangdong officials also seem to be backing down from
efforts to transform the area from a manufacturing hub into a high-tech and
services center. In recent years, the government had been content to see
polluting factories and sweatshops go out of business to make room for
companies higher in the value chain. Now the government seems inclined to
help them survive.
Chong Yik Toy is but one of a number of bankrupt companies whose employees
have received payoffs from the government.
In the eastern city of Wujiang, nearly 1,000 workers from bankrupt Chunyu
Textile Co. received four months' salary on Oct. 27 after they swarmed the
area's four main roads to draw attention to their cause. After more than
1,000 workers for home appliance maker BEP International Holdings gathered
outside the factory to protest, district officials gave them $44 each late
last month. The employees were also allowed to continue living in the
defunct factory's dormitories for free. The same week, the government
offered three months' back pay to the 900 workers at Gangsheng, an
electronics supplier, after they staged a protest at a shop near their
factory.
In the neighboring city of Dongguan, the local government handed out about
$3.5 million on Oct. 21 to the employees of Smart Union -- which sold its
toys to Mattel, Disney and Hasbro -- after the 7,000 workers staged a
strike.
Hu Weicai, 38, who worked with the plastic molds used to make electronic
toys, said employees became nervous when the owners slipped three months
behind on salary payments. The workers occupied the factory and the
surrounding streets until government officials promised them they would be
paid.
"The government was very afraid when they saw what was happening. What the
government fears most is workers making trouble. They paid us to stabilize
our moods," Hu said.
But employees said a one-time payment will provide only a temporary reprieve
from the unrest if the workers are unable to find new jobs.
Jia Yingge's husband, a guard, received a little less than his monthly
salary of $300. With no employment prospects in sight, she worries about how
the couple will support their newborn son.
"If you mention this company's name, no one wants to hire you because they
know about the blockade and now we have a bad reputation," Jia said.
When Liu Fangping, 38, was paid, the government took his fingerprints with
red ink -- presumably to make sure the right person was receiving the
payment. But Liu noted that the prints could also be used to pinpoint
troublemakers who continue to protest despite the handouts.
"I don't think the government is doing its best to protect the rights of
workers," Liu said, adding that officials seemed more interested in
controlling unrest than helping individual workers.
Indeed, signs posted at the gates of closed factories did not direct former
workers to places where they could get help, but instead displayed a
warning. In large black characters, they reminded workers that they could be
detained for stirring up unrest, for disobeying security officials or even
for "unlawful gathering."
Researchers Crissie Ding and Liu Liu contributed to this report.
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