The "Hard-Landing" Has Arrived: Chinese Coal Company Fires 100,000

Tyler Durden's picture

The global commodity collapse is finally starting to take its toll on what China truly cares about: the employment of the tens of millions of currently employed and soon to be unemployed workers.

On Friday, in a move that would make even Hewlett-Packard's Meg Whitman blush, Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group, the biggest met coal miner in northeast China which has been struggling to reduce massive losses in recent months as a result of the commodity collapse, just confirmed China's "hard-landing" has arrived when it announced on its website it would cut 100,000 jobs or 40% of its entire 240,000-strong labor force.

Impacted by the slump in coal prices, the group saw its loss over January-August surged more than 1.1 billion yuan ($17.2 million) from the year before. In the first half of 2015, the group closed eight coking coal mines most of which had approached the end of their mining lives, due to poor production margins amid bleak sales.

Chaiman of the group Wang Zhikui said the job losses were a way of helping the company "stop bleeding." The heavily-indebted company also plans to sell its non-coal related businesses to help pay off its debts, said Wang. The State-owned mining group has subsidiaries in Jixi, Hegang, Shuangyashan and Qitaihe in Heilongjiang province, which account for about half the region's coal production.

According to China Daily, last year, Longmay launched a management restructuring and cut thousands of jobs to stay profitable, amid the overall industry decline. However, the company still reported around 5 billion yuan ($815 million) in losses.

It has been a dramatic fall from grace for the company, which in 2011 reported 800 million yuan in profit with annual production exceeding 50 million metric tons.

Experts said staff costs remain a major reason for the company's continued heavy losses. That, and the ongoing collapse in met coal prices of course.

Last year its coal production stood at 49 million tons, just 10 percent that of Shenhua Group Corp Ltd, China's biggest coal producer. But Longmay's workforce remains well above that of Shenhua's 214,000 in total.

The announcement came in the midst of Chinese president Xi Jinping's ongoing tour to the United States, where he assured politicians and businessmen that China's economy will achieve the targeted 7% growth in gross domestic product.

It gets worse, especially in a worst case scenario: Longmay also has 180,000 pensioners to take care of, with life-long payments covering pensions and medical insurance, which are also considered a huge financial burden. As China Daily notes, "Personnel is probably its largest cost," said Deng Shun, an analyst at Shanghai-based energy consultancy ICIS C1 Energy.

"Actually many traditional State-owned coal enterprises are facing the same kind of problem. It has become more severe as the industry remains on a downward trend."

Deng also cautioned on the social problems that massive layoffs may cause, suggesting a reduction in welfare or salaries might be a better way to cut back on costs.

The shocking move is a harbinger of more pain for not only the local government-backed and heavily indebted company, with an eventual bankruptcy looking increasingly probable unless met coal prices don't stage a miraculous rebound, but China's entire coal sector, which in recent years has been a source of millions of jobs to China's unskilled labor force.

And as China's commodity bubble bursts, and the fixed-investment surge mean reverts, the coal industry is set to become a source of millions of job losses.

Incidentally, far more than the Chinese stock bubble burst, or even the credit and housing bubble, the implications from mass defaults of coal companies are precisely what is keeping Beijing up at night.

As the WSJ reported in a piece earlier this week, "for decades, an army of migrant workers drove China’s boom times, flocking to its cities to sew T-shirts, assemble iPhones, or build apartment blocks and Olympic stadiums. The arrangement helped millions of poor, rural Chinese join a new consumer class, though many also paid a heavy price.

The paper of record adds:

now, many migrant workers struggle to find their footing in a downshifting economy. As factories run out of money and construction projects turn idle across China, there has been a rise in the last thing Beijing wants to see: unrest."

Because if there is one thing China's politburo simply can not afford right now, is to layer public unrest and civil violence on top of an economy which is already in "hard-landing" move. Forget black - this would be the bloody swan that nobody could "possibly have seen coming."

As for the future of China's unskilled labor industries, the Fifth Element's Jean-Baptiste Emanuel Zorg has a good idea of what's coming.


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Nesbiteme's picture

Over the past two decades or so America and China have participated in the Great Leap Into Chaos and the Cultural Devolution.

Handful of Dust's picture

It will soon be time for United States, China, etc to start rounding up it's intellectual class and middle call and sending them off to the fields and FEMA Camps to be "Re-educated." The method seems to be very successful.

 

http://www.abc.net.au/pm/content/2010/s3020355.htm

WillyGroper's picture

Getting amusing.

PBS/Nova just had a program on the internment camps.

Funny, Zhivago was on last night.

Miss Expectations's picture

Forget black - this would be the bloody swan that nobody could "possibly have seen coming."

Or...

"Between me and the moonlight flitted a great bat, comeing and going in great, whirling circles."
- Bram Stoker, Chapter 8Dracula

 

i_call_you_my_base's picture

Malinvestment in manifest.

jtlien's picture
    

The good news is the companies making pink slip paper are hiring.

mijev's picture

Every year China has 8M+ new university graduates entering the workforce. That's the same as the total population of Sweden. And that's after implementng the the one child per family rule. Yet the chinese government says they are concerned that they won't have enough young people in the future to fill their job vacancies. You can witness that same dumb logic in every country in the world.

BandGap's picture

They have >25 million more men than women ages 18-26 in China due to the one child policy. That's a lot of guys that will never have a wife or a family.

Frustrated Incorporated

What to do, what to do.........

mijev's picture

If it was a western country you'd expect an outbreak of violence but chinese people don't seem to be like that. I spent a couple of years there and I was in bars every night and I never saw a single fight. Contrast that with the US or UK and you need to keep your wits about you if you're in a bar. But a breaking point will come in the not too distant future and a lack of jobs may be more important to them than getting laid.

FredFlintstone's picture

millennia of eating rice with chop sticks may make you docile. tearing into red meat with knives and forks on the other hand...

847328_3527's picture

miljev,

 

<< Contrast that with the US ... where every thug carries a 9mm Glock.

 

 

Chairman's picture

But only as a backup to my Colt .45 ACP.

G.O.O.D's picture

9mm meh, when you really want to stop that roid raged charging linebacker lookalike from da hood with one shot, make mine a 45.  Why waste ammo? Use a 45.

tarabel's picture

 

 

They'd wear out their shoes before they could walk to my house, so I save even more ammo.

But yes, 1911 is the name of the game.

Fahque Imuhnutjahb's picture

12 ga. pump, unplugged, 18.25" (wink, wink), modified choke, 000, 000, slug, slug, 000, 000, slug, slug.  Aiming sucks under pressure.

tarabel's picture

 

 

Oh, stop it with the baseless as-seen-on-TV assertions.

Spiritof42's picture
Spiritof42 (not verified) mijev Sep 27, 2015 12:00 PM

My experience with Asians, and Indians too, has been the same in the USSA. They are more polite and friendly than what I'm used to. And they don't get involved with politics either. 

Chairman's picture

All the young girls come to the big cities to work, there is no shortage of girls in the cities, which is why I will never leave this place.

Spiritof42's picture
Spiritof42 (not verified) BandGap Sep 27, 2015 11:49 AM

What to do, what to do.........

Masturbate a lot. 

InflammatoryResponse's picture

that is going to be a HUGE problem going forward.

 

tarabel's picture

 

 

If those were 8 million STEM graduates, that would be one thing. But 8 million compliant little bureaucrats-in-training is another thing.

Just for the record, however, it is not the same as the total population of Sweden.

mijev's picture

TB I didn't check. I read in another article earlier that sweden had 9M.

o r c k's picture

True. Any future co. needing workers could hire temps from other countries like Saudi Arabia does or professionals from developed countries. But no, they need half a million "refugees" a year !

Spungo's picture

I wonder what a Chinese coal mine looks like. They probably pump H2S into the mine just to make it more dangerous.

BandGap's picture

Just extend them our unemployment benefits and print up some EBT cards. There are plenty of Walmarts in China.

I'm so smart it hurts.

Deflationist's picture

Money has already been siphoned off by State Coal Mafia. Now some scapegoat to be found to quell worker's rebellion.

MsCreant's picture

Pigs will fly before this is all over. We will call it a black swine event. We saw it coming all right, we just couldn't believe it enough to act on it. Black swine event, you read it here first.

We are all stupid and greedy. There are some stupider and greedier that are making things worse (governments and oligarchs). We are all going down the tubes together. 

Nothing special here. 

Move along.

WillyGroper's picture

Black swine event, you read it here first.

 

Now that was a good chuckle.

So true!

thecondor's picture

We restructured some folks. 

wizteknet's picture

All in the name of them CEOs & upper management to get them bonus's, million dollar paychecks.

messystateofaffairs's picture

this is not a macroenconomic hard landing, this is chinese people being unable to breath anymore coupled with cheap russian natgas alternatives

mijev's picture

The winters are brutal in Harbin and the people are tough. A mix of chinese, korean and russian in their blood. Not the kind of place you want to be down on your luck.

Chairman's picture

But the girls of Harbin are the prettiest girls in the world.

Tinky's picture

Should you ever happen to find yourself in need of a job, I'd suggest steering clear of those which require or emphasize originality.

Fahque Imuhnutjahb's picture

Maybe a position at the Fed., but He No Ju?

tarabel's picture

 

 

I thought he was Korean.

ivana's picture

KOL is making multi month low

FedFunnyMoney's picture

Get ready, folks. I give us two years maximum before World War III is in full swing.

J Jason Djfmam's picture

More likely is an extraterrestrial false flag attack where world powers will join together to battle

these alien terrorists, solidifying the new world order, and giving said order power over all earthlings,

for the sake of mankinds survival.

"X is being done to you in the name of world security."

We are almost there.

fishwharf's picture

I hope we have two more years.  I need a few months to wrap everything up in the City before I move permanently to my land in a remote part of Oregon.

Monetas's picture
Monetas (not verified) Sep 27, 2015 10:43 AM

Freed .... not fired .... dangerous work in a worker's paradise !

Bunga Bunga's picture

Why work when real estate is up 100%?

Eddielaidler's picture

This.

Deng also cautioned on the social problems that massive layoffs may cause, suggesting a reduction in welfare or salaries might be a better way to cut back on costs.

That's desperate.

I could'nt imagine that being vocalized in the U.S.

The true commodity and industrial collapse is in that statement.

chopd livr's picture

unions face this choice frequently in the us

Teh Finn's picture
Teh Finn (not verified) Eddielaidler Sep 27, 2015 11:23 AM

Ask the two and three tier wage earners of American unions...

Chairman's picture
Welfare in this context would be better translated as Social Welfare which is similar to Social Security.