When you look out across markets and across the increasingly fraught geopolitical landscape, there are plenty of black swans waiting in the wings (no pun intended). And quite a few of them are Chinese.

China has, among other problems: a massive debt overhang that, all told, amounts to more than 250% of GDP; a decelerating economy that Beijing swears will be able to pull off a miracle and move away from the smokestack and away from export-led growth without slipping into recession; a currency crisis; a new property bubble in Tier-1 cities; and a burgeoning NPL problem in the banking sector.

All of those issues are of course inextricably bound up with one another. They are set like dominoes and once the first one tips, the rest will too as sure as night follows day.

And while twin crises (financial and economic) in China would wreak havoc on markets in both EM and DM – between which China exists in a sort of limbo – the real question is this: what would the consequences be for societal stability in China? That is, if it all falls down, will social upheaval ensue leading to a revolt against the Politburo?

That’s not some attempt to use hyperbole on the way to positing some anarchic future for the world’s engine of global growth and trade. In fact, the possibility for widespread unrest is so real that Chinese officials have begun to address it frequently in discussions of how they plan to deal with the mass layoffs that are bound to result from Beijing’s efforts to restructure the country’s collection of elephantine SOEs and stamp out excess capacity.

After Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute told Xinhua that eliminating excess capacity in the steel industry will cost 400,000 jobs and could fuel “social instability”, the government went into spin mode. National Development and Reform Commission Chairman Xu Shaoshi said in February that Beijing’s attempts to curb overcapacity will increase unemployment in provinces with high output of steel and coal but will not cause social unrest. Similarly, Xiao Yaqing, who oversees the government commission that looks after state assets, said last week that the country won’t experience a wave of layoffs as a result of SOE restructuring.

But the cracks are already starting to show.

As we reported on Mondaythousands of miners in China’s coal-rich (or poor depending on one’s perspective) north have gone on strike over months of unpaid wages and fears that government calls to restructure their state-owned employer will lead to mass layoffs. As AFP noted, protesters were marching through the streets of Shuangyashan city in Heilongjiang province, venting their frustration at Longmay Mining Holding Group, the biggest coal firm in northeast China.

Speaking of Longmay, the company is laying off 100,000 workers and in a sign of things to come, around a quarter of them have been reassigned to the agriculture, timber and public service industries.

While that’s good news for the unemployment rate, it’s bad news for workers. Why? Because those jobs pay around a third (or less) of what mining jobs pay.

“(Changing professions) is not easy,” a miner who left Longmay last yeartold Reuters. “All those who are changing professions went to work in sanitation or logging,” for less money, he added. Here’s more:

The government has earmarked 100 billion yuan ($15 billion) for relocating and retraining state workers over two years, but with up to 6 million coal and steel jobs to be axed those funds could be spread very thin. 

Workers laid off from inefficient state-owned coal and steel firms will join those made redundant at private firms in struggling sectors like textiles and apparel, which are shedding an estimated 400,000 employees a year.

That risks creating a cohort of middle-aged blue-collar workers with bleak prospects in an economy growing at its slowest rate in decades.

Slower economic growth means it will be harder to absorb redundant workers. Local governments in distressed regions like the northeast lack the capacity to do much more than hand them a mop or a shovel. Where workers do manage to secure new jobs, many are likely to find themselves demoted, earning less and with bleak career prospects.

“The most likely result from future industrial layoffs is not a sharp increase in unemployment, but a further deceleration in household income growth,” Cui Ernan, labor analyst at Gavekal Dragonomics in Beijing, wrote in a research note.

And that means you can kiss the dream of a successful transition to a consumption and services-led economy goodbye. Or, as we put it exactly a week ago: It would be a small (actually scratch that, a “very large”) miracle if Beijing is able to restructure the economy’s collection of elephantine SOEs without creating an employment crisis. And if, as Zhou says, China intends to depend on domestic consumption rather than exports to fuel growth, then the PBoC had better get to explaining how exactly it is that hundreds of thousands of recently jobless factory workers are going to be able to be power the hoped-for but still nascent transformation.

“The average annual wage in mining in 2014 was 61,677 yuan ($9,542), compared with 28,356 yuan in farming and forestry, according to official data. Textile workers moving to restaurant and retail jobs can expect to earn around 37,264 yuan, a drop from the 51,369 yuan average pay in manufacturing,” Reuters continues. “In Shuangyashan and nearby Hegang,the consumption-driven economy looks a distant goal.”

Clearly, handing someone a mop and a 66% pay cut isn’t going to be a viable solution for the millions upon millions who are about to be jobless in China. And we don’t just mean “viable” in terms of the read through for China’s hoped-for transition away from investment-led growth. We mean “viable” in terms of fending off a popular revolt.

But if the masses do rise up, don’t expect the Politburo to go down without a fight. In fact, Beijing is already taking steps to discourage public displays of disaffection. On Wednesday, in the country’s southwest, eight construction workers tied to a protest held in Langzhong last August weresubjected to a 1950’s-style public sentencing. Their crime: protesting unpaid wages. Their charge: obstructing official business. The verdict: guilty.

“Many Chinese recoiled from the humiliation of pitiable migrant workers in a much-reviled and largely disused judicial practice,” WSJ wrote, earlier this week. “Legal experts, journalists and laymen alike launched into caustic criticism of the Langzhong court, calling its rally barbaric and an egregious violation of due process.”

Right. And that’s the whole point. Because if you give angry workers the idea that they can protest without suffering severe consequences, well then you might just have yourself a whole lot of protests once the layoffs begin in earnest. The workers shown flanked by police below will be spending the next six to eight months in jail.

Of course when people can’t feed their families they stop worrying about public shaming and even forget about the threat of prison. Which is why China will ultimately be unable to contain the public’s collective anger when the proverbial rubber hits the road.

The local government said the public sentencing was an effort to “to educate the public on how to lawfully protect their rights.”

The response from one Weibo user: “Don’t take the public for fools. You think the people don’t understand your purpose in using public sentencing?”

The Party had better figure something out quick. Because while you can make an example out of a handful of construction workers, and while you can “disappear” dissident journalists, the only thing you can do when millions of furious Chinese descend on Zhongnanhai is start shooting.


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