China Warns "Social Stability Threatened" As 400,000 Steel Workers Are About To Lose Their Jobs

Tyler Durden's picture

In late September, we were stunned to read (and report) that in the first mega-layoff in recent Chinese history, the Harbin-based Heilongjiang Longmay Mining Holding Group, or Longmay Group for short, the biggest met coal miner in northeast China had taken a page straight out of Jean-Baptiste Emanuel Zorg's playbook and fired 100,000 workers overnight, 40% of its entire 240,000 workforce.

For us this was the sign that China's long awaited "hard landing" had finally arrived, because as China's paper of record, China Daily, added then: "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."

We added that "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" and concluded that 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.

Fast forward to today when, if not a full million, Xinhua reports that as part of China's proposed excess capacity production curtailments the country's steel production slash will translate into the loss of jobs for up to 400,000 workers, estimated Li Xinchuang, head of China Metallurgical Industry Planning and Research Institute. Li said more people will be affected in the upstream and downstream industries. According to some estimates just like every banker job in New York "feeds" up to three downstream jobs, so in China every worker  in the steel industry helps support between 2 to 3 additional job.s Which means, 400,000 primary layoffs would mean a total job loss number anywhere between 1.2 and 1.6 million jobs!

As a reminder, previously China had announced that it would cut steel production capacity by 100 to 150 million tonnes, while coal production will be reduced by "a relatively large amount," according to a statement released Sunday by the State Council. We have yet to get an estimate of how many coal jobs will be lost.

The reason we were, and remain, skeptical about China ever following through on this production curtailment is precisely the massive layoffs that will result: layoffs which would enflame an already tenuous employment situation because as we showed recently, the number of worker strikes in China has gone parabolic in the past year, soaring to a record high over 2,700 in 2015, more than double the previous year's total.

 

Li confirmed this very disturbing trend when he told Xinhua that "large-scale redundancies in the steel sector could threaten social stability."

Which brings us to the most important topic facing China: how it will respond to the imminent labor market crisis as millions of workers are laid off either voluntarily, or as a result of bankruptcies of their employers: this, as we said in November, was the biggest risk facing China.

One avenue China is actively pursuing realizing it is years behind the curve, is the ad hoc implementation of an unemployment "safety net" - a form of unemployment benefits like those which recently laid off Americans are entitled to for extended periods of time while they try to find a new job. This will not be easy as China has absolutely no practical plan how to implement this.

According to Xinhua, "China will raise funds to help workers reestablish themselves should they lose their jobs when coal and steel firms close amid campaigns to cut overcapacity."

A large number of coal workers are expected to be affected by future capacity cut, although the State Council did not specify the scale.

 

To deal with looming redundancies, an "industrial restructuring fund" was initiated on Jan. 1, pooling money from factories across the nation based on their power consumption.

 

Brokerage Shenwan Hongyuan Securities estimates that the fund could draw in 46.8 billion yuan (7.2 billion U.S. dollars) a year.

 

"As required by the State Council, related departments are formulating rules on the use of the industrial restructuring fund," said Jiang Zhimin, vice head of China National Coal Association.

 

"As far as I'm concerned, the bulk of the fund will be allocated to redundant workers," said Jiang. The fund will be partly used to compensate laid-off workers, according to Sunday's State Council statement.

Demonstrating just how "serious" this proposal is, the State Council called on enterprises to think outside the box and find ways to reduce redundancies and compensate laid-off workers.

We give this track about a 1% chance of manifesting in something practical.

In a separate proposal, the government is also encouraging redundant workers to start their own businesses, with tax breaks and other preferential policies.

Alas, the creation of millions of new profitable businesses (because unprofitable startups only thrive in Silicon Valley) is far, far more difficult than it sounds in some Beijing spreadsheet.

A previous round of economic restructuring in the 1990s, when China was transforming from a planned economy to a market economy, saw tens of millions of people losing their jobs, particularly those employed by state-owned enterprises.

Although many redundant workers started businesses, the rising unemployment created social problems. In the current round of economic restructuring, inviable and non-competitive "zombie enterprises" are being targeted by the government, as oversupply has hammered steel prices below the cost of cabbages and beaten coal price to a multi-year low.

This time, Xinhua says that the government will pay more attention to those who lose their jobs. The reason is simple: a few million angry, unemployed workers and China will have precisely the working class insurrection it has been preparing for since 2014.

 

Xinhua concludes by saying that the leadership attaches great importance to job creation amid the economic slowdown, which is ironic because economic slowdowns are always accompanies by mass layoffs. There is some hope for spin yet: "now a low unemployment rate provides room for the capacity glut reduction.... Surveyed unemployment rate in major Chinese cities was around 5.1 percent in 2015, which remained at a low level, compared with an average of 6.8 percent for the 34-member Organization for Economic Cooperation and Development (OECD) last July."

The problem, of course, is that just like every other economic indicator in China, this one too is utterly wrong and dramatically inaccurrate, and is simply meant to goalseek what a few politicans demand be shown so they get a few approving nods from the Politburo.

Just how disconnected from reality China's official unemployment rate is, both now and one year from today, will ultimately determine how violent the social upheaval will be when - as part of its hard-landing - China proceeds to lay off (tens of) millions of low-skilled workers leading to the inevitable violent response.

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Hitlery_4_Dictator's picture

What a radical time to be alive.

knukles's picture

Old Chinese proverb:  May you live in interesting times
(Meant as a curse)

Latina Lover's picture

Seems like the Chinese workers are less passive than Americans, when facing mass layoffs.  When did we become so wimpish?

Kayman's picture

I wonder if the Chinese elite intend to out-source jobs to America.

KesselRunin12Parsecs's picture

The only jobs 'left' in America are in the government 'cheesemaking' industry...

UncleSparky's picture

Blessed are the Greek. For they shall inherit the smouldering ruins of our civilisation

COSMOS's picture

Only 400,000K jobs lost, that is like nothing compared to the number of jobs we lose in a day in the USA.

Stuck on Zero's picture

My guess is that the police captain was told there were 4 rioting steelworkers and he decided to send 100 cops out to make it an even match.

puckles's picture

We prefer to call it "making sausage."  Less smelly, and cheesy, overall, especially for those with lactose intolerance. :)

thesonandheir's picture

What an orderly looking riot.

BandGap's picture

Actually, these are shots of the police training for the inevitable over a year ago. The real shit is always messier.

new game's picture

cauldron of slag runnith over...

kliguy38's picture

just be like us and become baristas

Manthong's picture

I like my baristas better if they have a PhD.

but maybe they could all move to India and become Cargill/Monsanto GMO farmers…

and then kill themselves.

 

Never One Roach's picture

"We were unable to reach the CEO, Tu Hung Lo, at his $15 million McMansion in Seattle for a comment on the massive firings at his China Corp."

macholatte's picture

“..the working class insurrection…”

 

Fascinating that nobody gives a second thought to any kind of “insurrection” when the people of the civilized (neutered) western countries get a royal screwing by their banker whore politicians.

Just one more reason why they are called Sheeple.

 

If the Chinese do blow their cool and have a good old fashioned “working class insurrection” politician BBQ, then let the Sheeple watch and learn.

 

 

When the government violates the people's rights, insurrection is, for the people and for each portion of the people, the most sacred of the rights and the most indispensible of duties.

Marquis de Lafayette

Insurrection is an art, and like all arts has its own laws.

Leon Trotsky



cougar_w's picture

Yeah, it will be interesting to see how the MSM spin a Chinese worker/middle-class revolt. Back in the day they portrayed the Tienanmen Square events as "patriotic" and freedom-yearning. I wonder if a new bunch of brick-throwers will get the same warm-n-fuzzy media treatment now that our own oligarch class are fretting over any kind of unease among the developed world unemployable masses.

Probably they will link Chinese unrest with "a failure of centralized planning" and make vague comparison to our own blessed by God capitalist system born on the Fourth of July, not mentioning that American capitalism is just another kind of elitist money grab raping the middle-class of their savings and pensions and strip mining all value out of companies that were built slowly by hand during 100 prior years of risk taking and innovation.

Because you know revealing all that might make people angry.

And we can't have that.

COSMOS's picture

Those protesters must not love their kidneys.

upWising's picture

This just in from Tu Hung Lo's spokeperson Yu Ow Da Luk: "Consistent with our Missionary Position Statement and Corporate Values, we take lay-offs very seriously and are committed to insuring an orderly process of right-sizing the industry."

[Translation: "Take the Patriot Position" (bent over, hands on ankles).]

bookofenoch's picture

Yes, yes. But are they pooping in pools and then swimming in it?

No?

Can we get these unemployed migrants instead?

flaminratzazz's picture

Unemployment, SNAP, free obama care/phones utilities paid, house payments paid, ect.. We don't have to work, those poor slobs are going to starve.

roadhazard's picture

You laughed at OWS so fuck it.

Oldwood's picture

Maybe the chicoms are not so generous with their entitlements.

Never One Roach's picture

They have very meager benefits but bascially, if you don't work, you starve.

 

It's called, "Work Incentive Method."

Harnar's picture

"Seems like the Chinese workers are less passive than Americans, when facing mass layoffs.  When did we become so wimpish?"

 

This happened when the pay for not working got so close to the pay for working.

Jack Burton's picture

"When did we become so wimpish?"

Latina, I think the answer is around 1984 or so. The Reagan revolution was amazing. I live in a mining and transport hub. Union workers were the norm when I was little. I still remember the Reagan Revolution. It was the day workers here turned against labor, unions and democrates. The working man followed Reagan all the way. Around here Union began to die fast as working men all voted republican and as part of that they took up the issues the 1% presented to them. It was a Sea Change. Since then, Republicansim is the norm for miners, loggers and industrail transport workers. Reagan pulled off on of America's greatest victories for capital. Even labor now votes capital. At least here they do.

KesselRunin12Parsecs's picture

Man who run in front of car become TIRED... Man who run behind car become EXHAUSTED...

SimplePrinciple's picture

Tired man fall in front of car, he become RETIRED.

Dubaibanker's picture

All the people who think China is slowing should keep drinking the western bullshit kool aid & keep dreaming of a China collapse! :)

While China continues to set one record bigger than another every passing year & proves with facts that there is no problem (except the volatility in the stock market & a transition from manufacturing to services).

Manufacturing will continue to slow down while service sector will rise just as it did in Europe, US, India for the last 3 decades and Dubai for the last 1.5 decades etc ...

4,000 times over subscription and the western analcysts have been saying that Chinese investors are running out of the market! :)

Then, what if the Chinese investors started running into the market?! Will we see 10,000 times over subscription :)

China's first IPO under new rules more than 4,000 times oversubscribed

 

Factbox: China by the numbers 2010 to 2015

 

China 2015 FDI rises 6.4%

 

Don't let the facts bother you! They just come in the way.....:)

Dubaibanker's picture

No, I did not!

Truth is stranger than fiction!

And yeah, it hurts!

Oldwood's picture

 

China will likely win in any real contest simply because while the rest of the world is premised on truth and transparency (and has none) China is free to do whatever they want. And if you complain they will simply end you or imprison you. There is a wonderful freedom in not giving a damn about "your people" more than  livestock. The western world cares no more than the Chinese, but they have committed to the lie of it, and as such must maintain the mechinations of it which limits their ability to act totally without conscience. China can and will manufacture and export product for free inorder to maintain their markets and employment to prevent just this kind of thing we see here. Americans will line up for the ever cheaper Chinese goods being dumped here and our governemnt will do nothing about it as they want the gravy train going on ever longer. American manufacturers are being squeezed out and as things get tougher here, retailers will not hestitate to sell us even more chinese to keep their sales alive. I believe that whatever happens to China's economy, ours wil be worse. WE produce less and less and are willing to work less and less. The Chinese are more willing and capable of withstanding the trials of a depression whereas the west is not. This is a test.

Manthong's picture

if you think this is not all managed from the bowels of the CB's....

think again.

Arnold's picture

When the Chinese subcontinent devolves into civil war, you can bet our support will go to exactly the wrong people.

Dubaibanker's picture

May I ask what will be the catalyst for a civil war?

If there will be a civil war, it can be in India, EU, Middle East but why.....China? 

Arnold's picture

Regime change is a Chinese constant, ie, the historical Dynasties.

The Commies don't seem to want it, following Mao's exit.

The current Oligarchs cannot hold the chinaman enthralled with rhetoric any longer.

Finally and as simplistically as the rest of the argument, the chinese sub continent is not as homogenous as it seems to our western eyes.

There have been many failed sparks that have made the news (Tienanmen), and I estimate dozens more that have not.

The Catalyst will be broken Hope .

LawsofPhysics's picture

Do to America's long standing ability and experience with killing people anywhere in the world at any time (always for the wrong reasons) and as a former ARMY AMEDD officier, I can tell you that there are many, many, pissed off, smart, now wealthy veterans and former service members just biding our time.  That experienced manpower will come in handy, sooner than most people think.

Dubaibanker's picture

Do you realise that when you open your mouth, you are spouting garbage?

Do you know that most goods that end up in Walmart or Target or Costco or Apple or Dell or furniture stores or Samsung anything are all built by FOREIGN COMPNAIES including ALL the US companies and then delivered in the US.

Why the hell are you blaming China for dumping those goods in the US?

It is American policymakers who allowed ALL large US corporations to NOT pay ANY taxes in the US PLUS  allow US companies to TAKE away all jobs to China.

If you have anyone to blame, it is your own politicains whom you probably voted for.

Read this and enlighten yourself before saying something

http://jobenomicsblog.com/manufacturing-industry-forecast/

US total jobs are at th elevel of 1950's while it's population has risen quite a lot since then.

34% of all Americans are working to feed 66% of the elderly and the unemployed!

You have no right to blame China for something your own Govt caused to you!

Most other nations like Germany or Thailand or Turkey or Russia still have manufacturing at a high level while US manufacturing has shrunk!

Everyone likes good shit at cheaper prices but Americans are the most gluttonous as a country and they are now paying the price for their past follies and for choosing the wrong kind of policymakers who are owned by the US corporations...

Oldwood's picture

I'm not blaming China for anything. Simply pointing out how our systems are different yet alike. The only people responsible for the state of our economy are WE THE PEOPLE. No one forced us to buy Chinese or any other good. We made that choice. Sure government and big business made it easy...they always do. Cheap credit, big lies about free trade and how these trade deals would make us all rich, while helping the poor starving people around the world by stimulating their economies. Well they were right about the last part, weren't they! We have turned our heads on our own industries. Our government attacked them as being too rich and stacked more taxes and regulations on their backs knowing EXACTLY what the outcome would be. We chose the foreign made goods over that of our friends, families and neighbors,... and the banks and the government loaned us the money to make up the difference where our incomes fell short. You don't need to preach to me about who is to blame. In this I agree with Trump. It's not the Chinese fault that our country has acted stupidly. But China is no paragon of economic responsibility. They could give a shit about their people. All they care about is the same thing as those in western societies care about...retaining their power. And if they have to destroy their economy to survive, they will. And if they have to burn ours down to the ground to do so, they will do so without a moments hesitation.

These best part is that the financial guys will ride this thing to the burning embers. They will seek to profit from the destruction in every way and will not hesitate in helping it along if needed. Bankers. If anyone out there knows whats going on it's them, and they are keeping their mouth shut. The last thing they would ever do is suggest people live within their means and invest in themselves.

Sono's picture

Some of what you say is not neccessarily true also. Its a common but totally false belief that the USA does not manufacture anymore. Truth is, the US manufactures more than any other country on the planet. Now the  composition of what we manufacture is what is different as in we manufacture the important stuff(Jet engines, Heavy machinery ect). Of coarse most of this industry is done by machines. All of the little gadgets that we buy from Walmart are imported because they cannot make these economically in the states. And nor would we want these jobs here. Why? These jobs create a huge amount pollution and even if they were here, would not pay a decent wage.

I think its a false belief that we do not have any jobs here and the economy is going downhill. There are literally MILLIONS of unfilled jobs in this country that pay a good wage that Americans do not have the qualifications for. And guess what, since Americans refuse to get the skills, the US goverment has no choice but to pass laws that allow people with either the skills or the DESIRE to aquire those skills into this country. And that trend will continue to accelerate. 

Oldwood's picture

Truth is, the US manufactures more than any other country on the planet.

 

Is that based upon the fact that we now qualify McDonalds hamburgers as manufacturing? I'm not sure how you get your numbers, and to be clear, I have none, but anecdotally, looking around, it is HARD to find an American made product. Almost all consumer grade electronics are foreign made. I have a wood shop business and virtually EVERYTHING in it is from Europe (mostly Italy). It is really hard to buy American made products now. Lots of our food is coming from central and south America. I was at Costco and they had packages of pine nuts...from China.

And as far as people not being willing to learn skills, I would submit that very few want to learn work related skills unless the have no other alternative. People coming here on H1b visas are coming from countries of limited opportunities and even less entitlements, whereas in America, NO ONE has to work. Government will subsidize you if you can draw a breath. Government even hires people to go out and seek people of which to assist. People do what they believe they must, and hardly anyone in America believes that they MUST do anything. Everyone is ready for their bailout, from Jamie Dimon down to the drug addict in the alleyway. America is failing because too many think they don't have to try.

Site's picture

Not sure where you came up with this shit but the wife and I choose to work, we are not getting subsidized by any son of a bitch nor are we looking to be. We work because we dont want to be dependant on the queer muslim niggers goverment, we outright own everything we have which gives us the abilty to do as we please. There are still plenty of opportunities here in the US if you are willing to work and not blow all your cash on fucking starbucks and porn.

Lost in translation's picture

Serious question for you (as you've taught me a lot here, over time):

Are you still keen on the Hong Kong Dollar?  I've been gradually trading FRNs for HKD since you recommended it.  Not a lot, but some, over the past several months...

I suspect it's about to be devalued... =(

Dubaibanker's picture

Thanks mate for your kind comments. Most appreciated.

I am still ok with the HKD but if you feel a bit jittery, I suggest to reduce exposure even further.

Allow me to explain how many things have changed in the last 1-2 years which were not anticipated.

"Strong" USD is hurting ALL pegged countries and not just HK. It does not make much sense why HKD would be under devaluation pressure except one (that the western banks who have been banned in mainland China) are upto their dirty tricks again).

We saw last week in Saudi also who have now banned short sellers on their currency.

Devaluation pressures are worldwide in Dubai, Saudi, HK etc whoever is pegged. But HK is not an oil driven economy unlike others.

What matters in HK is whether mainland China will suport them which they will because it is SAR. In addition, the reserves of HK are still rising from 2010 and until date, so at a macro level there are no problems unlike in the oil dependent economies where their reserves are dropping significantly.

Due to 'expensive' HKD as well as USD, mainland tourists have stopped visiting which is hurting at a micro level. Real estate is finally slowing down and so is the HKSE.

What is important is that in 2013, HK was the first country to receive the China stock connect. Most mainland companies are listed here.

However, the shine of HK is reducing as Shanghai booms and as do other mainland cities. It is not required to be the primary 'test' centre for financial policies of mainland any longer.

I do not see that Chnia or HK will default or will be unable to defend the peg.

There are so many variables at play that it is not funny.

We also need to predict when will Saudi break the USD peg or move closer to China and when will USD collapse?

This is also tied into the HKD revaluation.

With tourists shrinking, business slowing, real estate weakneing, USD collapse pending and on the positive side, China's support, most listed companies, stock exchange connect, it is like a tug of war but giving a few billion USD to support HK is not even a question, it will certainly happen. But HK is far away from such an extreme scenario.

I think HKD peg will break to the upside, if at all. It cannot depreciate because it is the territory of China and has always been a nerve centre and a gateway for all China experiments. and if it reduces it will ike a sign of China's weakness and this is certainly not happening with the war chest and tools that they have at their disposal. HK is still very attractive to mainland citizens due to low tax, language, food, culture, banking, pegged currency etc. Slow tourism for one or two years is not enough to break th epeg to the downside.

There is another thing what most people don't get. Countries like China, India and the US are VERY large countries. Because of their economic and population sizes, they simply cannot fall apart. They can slow down, they can rise, but they cannot fall apart because there are simply too many variables and too many people involved.

It is impossible to accurately predict what goes in these 3 large economies and hence it is impossible to predict whats coming next. How can anyone predict the collapse of an economy? We can predict a currency collapse due to lack of usage or demand or collapse of a bank due to debt or of a city or large comapny if no Govt support if available, but in totality these 3 countries are very very difficult to predict because inherently their population provides a lot of support.

Only small countries can be predicted in terms of collapse and some great examples are Greece, Portugal, Zimbabwe, Venezuela etc but guess who has come to help them out in their hour of need? - China!

All thet the EU and US did was to provide very low coverage in the media for the last  decade so when the pressure cooker finally burst, they themselves ran for cover and oculd not support their own nor could they support Latam countries and all of those have now landed in the lap of China, all for a few billion dollars! I wish I could buy a country for a few billion dollars! :)

Due to all this, I believe HK cannot be left alone unless some major political event occurs between China and HK which is also theoreticlaly impossible to predict nor possible to occur because HK is a territory of China.

Finally, I believe that you may continue with HKD trade but reduce it if you feel uncomfortbale. But there are not many currencies you can hold anyways because most are at the verge of c aollpase and getting very hard to predict, except to the downside (pun intended) :). Depending on where you live, you should have your local currency, then as much as you wish in USD, some in HKD but also have a large chunk in CNH (between 5% to 30%).

Hope this helped.

Lost in translation's picture

Helps IMMENSELY, thank you so much!

I will stay with HKD, slow and steady, as per your recommendation to me last year and for the reasons you've given, here. 

Do not have exposure to CNH (did I miss that advice somehow?) but will take immediate action.

Copying/printing/posting everything you shared, above, to my office wall for future reference.

Once again, ten million thanks for the time and effort you've put in to help me learn and move forward, I'm indebted to you, friend.

Oldwood's picture

So big economies are too big to fail? I would suspect they are at a greater chance of failure given their complexities and the general inability for central planning to do much but screw things up. Rather than too big to fail, I would say the bigger they are the harder they fall.

Dubaibanker's picture

Generally, I agree with you but we are talking of economic systems not social systems here....

USD could collapse but America won't. Just like Greece or Portugal or how Americans bombed Japan or kicked Argentina, now the americans will also muddle through.....in the future.

Humans are built for survival. Though Americans have become the worst form of humans. They will not stop at killing, maiming, looting themselves or others or drugging millions of their own people...The US Govt just keeps watching and allowing all kind of crazy things to happen.....I really have no clue why they dont get their moral fabric right and just live like simpletons but they rather live in multi million dollar mansions and loot the entire world and even their own poor and oppressed just to "move ahead".

The rich in US are the problem, especially the super rich because they became rich not due to inventing anything but looting of others and being cosy with the US Govt and MIC. Most especially the Top 20-30 bankers in each bank. When will Americans get the good sense to dissolve their banks and loot their looted money back from these small group of bankers? The least the Americans should do, is to elect ANYBODY except the Republicans and Democrats.

But I wonder who will help US now they are in trouble?

China has given indications that they are not ready except for buying US items on sale, for example, China has not given the Chinese yuan clearing centre to only one country in this big bad world - the great ol' USA!!!!

Marge N Call's picture

In terms of China's economic might, I don't disagree with you necessarily in the longer term. But the facts are

1) China began it's transformation into a quasi-capitalistic society post Mao (1976ish).

2) China entered the WTO in 2001.

3) China has a population of around 1.3B people, a large chunk of whom are still living in villages in what we would call a less-than-modern fashion.

4) China adopted on a lot of Western ideas in becoming an economic powerhouse, like technology, financial engineering, and domestic consumption (At least attemping to).

OK, comparing with the ascent of the US, which took roughly 140 years (from founding to WWI or WWII, whichever you please), with about 10% to 25% of the population of China, and a relatively uniformly capitalistic culture. In that time it saw major crises: financial, existential, assassinations, etc. It could gotten fucked up and gone the way of, say, Argentina, as a result. But it didn't and here we are on our descent.

So given that China is about 30 years into it's ascent, with 5x-10x the people, and globalization, and major headwinds on the way, I think you would be crazy NOT to think that CHina is going to have some really, really, nasty "growing pains", like depression, radicalization, etc. The question is when and how bad those are. It IS GOING TO HAPPEN TO THEM.

The question is how will they deal with it and what will it cost them.