Cablegate: China Bracing for Declining Employment in Export Sector

P 020942Z DEC 08
FM AMEMBASSY BEIJING
TO SECSTATE WASHDC PRIORITY 1177
DEPT OF LABOR WASHDC
INFO CHINA POSTS COLLECTIVE
DEPT OF TREASURY WASHDC
USDOC WASHDC
LABOR COLLECTIVE

UNCLAS BEIJING 004407

DEPT PASS USTR FOR KARESH, BUFFO, STRATFORD, LEE
LABOR FOR ILAB AND OSEC
TREAS FOR OASIA/ISA-CUSHMAN
USDOC FOR 4420/ITA/MAC/MCQUEEN AND DAS KASOFF

E.O. 12958: N/A
TAGS: ECON EFIN ELAB CH
SUBJECT: CHINA BRACING FOR DECLINING EMPLOYMENT IN EXPORT SECTOR

1. (SBU) SUMMARY: China?s Ministry of Human Resources and
Social Security (MOHRSS) has announced that China does not yet
face a ?wave of layoffs? as a result of the global financial
crisis, but that a ?grim employment situation? could develop in
2009. Labor Economist Wang Dewen told Laboff that MOHRSS may be
preparing the public for a notable rise in unemployment and said
the government is responding quickly and responsibly to the threat.

Given the Chinese economy?s dependence on exports, Wang said the
degree of job loss will depend on the length and depth of economic
recession in China?s export markets. While China may face a near-
term rise in unemployment, Wang believes Chinese demographics will
ultimately lead to a relative labor shortage, which will further
erode the competitiveness of China?s labor-intensive export
industries. END SUMMARY.

2. (U) The Chinese and foreign press have recently been rife
with anecdotal reports of closing factories and lay offs. To
address this issue, the Chinese Ministry of Human Resources and
Social Security (MOHRSS) just concluded a month-long 11 province
survey of employment conditions, and stated that there has been a
minor, recent increase in unemployment. While MOHRSS announced
that there is no ?wave of layoffs? it did warn that a ?grim
employment situation? may develop over the next few months.
MOHRSS has not publicized detailed findings from its survey, and
existing unemployment statistics do not capture the migrant
workers in the export-sector who would be most affected by the
downturn. For more perspective on impact of the global financial
crisis on Chinese employment, Laboff met with Professor Wang Dewen
at the China Institute of Social Science?s Institute of Population
and Labor Economics on November 24.

3. (SBU) Wang said his Institute recently conducted some small
scale employment surveys of its own and found a large number of
factory closings (up to 20 percent of employers in some export-
intensive regions) and a larger than usual end of year decline in
manufacturing employment. (Note: Wang did not provide information
on the number of factory openings, the relative scale of the
closed factories, or compare the number of closings this year to
previous years. End note.) He said it was impossible to
extrapolate an unemployment rate from such an unscientific study,
but that he believed estimates from the governments of some
migrant worker-sending provinces, which reported that 4-5% of
migrant workers have returned home in the fourth quarter of 2008,
understate the degree of job loss. He noted that a CASS household
survey of export-manufacturing regions in healthy economic times
(2005) found an unemployment rate of 5-6% percent. Wang told
Laboff that he believes MOHRSS, as a result of its recent survey,
has a much clearer picture of rising unemployment than it has made
public, and that the Ministry is getting the public used to the
idea through its warnings about the coming months.

4. (SBU) Wang said the government is acting quickly and
responsibility to deal with the threat of rising unemployment.
MOHRSS has announced a number of measures at the central and local
government level to maintain stability in employment. These
include measures to keep export-oriented manufacturers in business,

such as reinstating certain tax rebates, suspending planned
increases in minimum wages, and providing subsidies to offset
employers? social insurance contributions for workers. Some
provincial labor departments have also issued new regulations,
requiring employers to notify the government in advance of planned
lay-offs, and have hinted at allowing employers to lower wages
rather than let workers go. Government measures aimed directly at
the labor force include job placement, vocational training and
small loans to migrant workers in their home provinces, and public
investment to stimulate economic activity and promote consumption.

However, Wang believes these measures could take several years to
have a meaningful impact. China?s economy is highly dependent on
exports, he said, and whether or not China can forestall serious
job loss will depend on the length and depth of recession in
China?s export markets.

5. (SBU) Wang noted that factory closings in China?s coastal
exporting regions actually began well before the financial crisis,
primarily because of the appreciation of the Chinese currency and
rising energy costs. However, Wang said employers report a
notable drop in orders from international buyers following the
financial crisis, and this has accelerated the decline. Wang does
not believe that now-falling energy prices will be enough to
reverse the trend. Wang said China needs to restructure its
economy to increase consumption and reduce dependence on exports.
While the financial crisis may bring about a near-term increase in
unemployment, Wang said he believes that demographic changes will
inevitably result in labor shortages, which will erode the export
competitiveness of China?s labor-intensive industries further.

6. (U) Embassy has requested a meeting with MOHRSS experts to
discuss current trends in unemployment and the findings of the 11
province survey.

RANDT

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