China's Mass Unemployment Wave Begins: Six Million Workers To Get Pink Slips

Tyler Durden's picture

Back in November, just as the world's attention was focusing on China for long-overdue reasons including a slowing economy, debt at well over 300% of GDP, an artificially high exchange rate whose devaluation is causing market shockwaves around the globe, a reflating housing bubble, a burst stock market bubble and non-performing loans, as high as 20%, when we pointed out the one "most under-reported" risk virtually nobody was talking about: Chinese employment.

... one risk, perhaps the biggest one, which has so far flown deep under the radar, is also the biggest one - which may explain why so few have noticed it - namely social discontent, resulting from a breakdown in recent "agreeable" labor conditions, wage cuts and rising unemployment, leading to labor strikes and in some cases, violence.

We then pointed out a disturbing indicator: the number of labor strikes in China, as a result of deteriorating labor conditions, sliding wages and surging unemployment, had become exponential.

 

Since then the media's attention did shift to this biggest, if no longer-underreported risk if not in the international arena then certainly to the domestic "growth" story: the imminent surge in unemployment as China's slowing economy is finally "passed down" to the worker level.

We received the first evidence overnight, when in the Markit report confirming China PMI deteriorating manufacturing, it also noted that "staff numbers declined at the sharpest rate since January 2009 during February. Companies that recorded lower headcounts widely commented on company downsizing policies as part of cost-cutting initiatives, along with the non-replacement of voluntary leavers. Despite lower employment, manufacturers were able to work through outstanding business during February. Though marginal, it was the first reduction in the level of work-in-hand since April 2015."

In other words, a labor bloodbath.

Today, Reuters finally peels away the first layer of just how bad China's mass layoff wave will be when it reports that China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution.

This admission, the first of many, will cost China.

As Reuters adds, "China's leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years."

That number, coming from the government, is laughably lower that what our own estimate of how much it would cost China to preserve the peace, a number which will likely be in the CNY11+ trillion range.

Needless to say, the overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by "zombie" state firms.

The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment. Shutting down "zombie firms" has been identified as one of the government's priorities this year, with China's Premier Li Keqiang promising in December that they would soon "go under the knife".

As forecast here all throughout 2015, it was just a matter of time before China had no choice but to unleash the mass pink slips, and that is about to happen: "the government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said."

A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.

Putting this number in context, the hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40 percent of the country's industrial output and nearly half of its bank lending.

According to Reuters, this would be China's most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds.

There are two big problems with this low-balled estimate. The first is that as China aims to cut capacity gluts in as many as seven sectors, including cement, glassmaking and shipbuilding, the downstream labor effects will be massive, and they will impact not only the public sector but all the countless workers in the private sector that service them.

According to some of the more bearish sellside estimates, as many as 20-30 million workers in both the public and private sectors will lose their jobs as a result of the massive overcapacity retrenchment that China will undergo in decades. Even that number may be a low estimate if the worst case scenarios about Chinese bad loans materializes.

The second problem is more nuanced.

The Ministry of Finance said in January it would also collect 46 billion yuan from surcharges on coal-fired power over the coming three years in order to resettle workers. In addition, an assortment of local government matching funds will also be made available.

However, the funds currently being offered will do little to resolve the problems of debts held by zombie firms, which could overwhelm local banks if they are not handled correctly.

"They have proposed this dedicated fund only to pay the workers, but there is no money for the bad debts, and if the bad debts are too big the banks will have problems and there will be panic," said Xu Zhongbo, head of Beijing Metal Consulting, who advises Chinese steel mills.

In other words, China is about to unleash a war on two fronts resulting from its slowing economy, one dealing with soaring NPLs, which as a reminder is the basis of Kyle Bass' bearish thesis on China and why he and many others think China will need massive devaluation in the coming year; the second will be dealing with the social fallout from the imminent mass layoff wave.

How any of this will happen is not clear:

Factories shut down would have to repay bank loans to avoid saddling state banks with a mountain of non-performing loans, the sources said. "Triangular debt", or money owed by firms to other enterprises, would also have to be resolved, they added.

 

Although China has promised to help local banks transfer the bad debts of zombie steel mills to asset management firms, local governments are not expected to gain access to the worker lay-off funds until the zombie firms have actually been shut down and debt issues settled.

As for the 150 billion yuan earmarked to provide "social unemployment insurance", one thing is certain - almost none if any of these funds designed to appears the newly unemployed, will actually reach the broader population.

Ultimately, Beijing's attempt to centrally plan a transition into a regime with "unemployment claims" will fail, unleashing what China's riot police has been preparing for ever since 2014, something we profiled in "Chinese riot police train for a "working class insurrection."

Consider the photos below a preview of what China is about to unleash domestically as it begins handing out the mass pink slips.

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Father Thyme's picture

The Fists of Righteous Harmony!

nuubee's picture

Where is Zorg when you need him, he'll fire 12 million.

Oh regional Indian's picture

Fear mongering is escalating...a blow off top nears perhaps?

A good time to try somethiing new, perhaps?

;-)

https://aadivaahan.wordpress.com/2016/02/29/21daystobalance/

JRobby's picture

They should move to North Korea and just toss their hats on to that fat little psychopath. He will be squished.

boink.voink's picture

Instead of worrying about China, Americans should worry about themselves. With a 25% unemployment and with nothing to show for it's manufacturing except guns and tanks. Even its servce sector can be summarised in a FANG. China has already integrated the Eurasian hemisphere and they have a huge domestic market with a socialist government in power who works with impunity, so they can easily manage this downturn, but what will happen to America when its chickens come home to roost.

You are looking into a massive civil war breaking out in USA with every state for itself. Grumpy and Hitlary are widening the rifts for the same, KKK and BLM are not chinese groups, this is happening in America. Grump endorses KKK and Hitlery takes sides with blacks and migrants and you fools are busy speculating about China. As if looking at their problems makes USA's problems smaller. You can't even see you are being set up for a race war.

They are million times bigger for USA. Once the dollar goes all hell is breaking loose in the so called land of the free. Each and everyone will have to pay for the millions of murders and rapes that Americans have allowed to be perpetrated in the name of democracy and revolutions.

 

CheapBastard's picture

Well, at least the Democrats, Obama and Pelosi gave Americans Obamacare:

 

People in Texas are significantly more likely than adults nationwide to report that it has gotten harder to see a doctor in the past two years.

"Frankly, it's a mess," Carlo says. "We just see this so frequently where a patient comes in, they're carrying a health plan card, it looks good, they double-check and when they go to file the claim to be reimbursed they find out they're not in the network."

 

http://www.npr.org/sections/health-shots/2016/02/29/468255954/in-texas-u...

The9thDoctor's picture

Foxconn is replacing slave labor for robots so many more Chinese will get the pink slip.

LowerSlowerDelaware_LSD's picture

And if Carlo said it (true what he/she said) it is totally raycissss to say otherwise.

Antifaschistische's picture

So.....because the US has problems we should never discuss issues elsewhere in the world?   China is relevant for the US also.   And China will NOT easily deal with their issues.  It will be a painful process for them....however, I will give you this...Chinese people are much more prepared for managing pain than Americans are.

boink.voink's picture

All I am saying is, "Those living in a glass house, should not throw stones at others."

This was aimed at the author of the article and those buying the recent China doom rhetoric, as if the west is living in paradise.

Mr. Universe's picture

While I agree somewhat with your views, you lose me with

Each and everyone will have to pay for the millions of murders and rapes that Americans have allowed to be perpetrated in the name of democracy and revolutions.

I can't even vote to stop the murder of the unborn on our own soil let alone what the Corporatocracy decides they want to do. They really will only capitulate to superior force, which at this point they possess. With all the lies, propaganda, and indoctrination in the schools, most Americans have no idea what is going on. 

boink.voink's picture

I agree to disagree, those perpetuating bloodshed are definitely guilty, but so are those who are standing by and doing nothing to stop it, instead they are busy ignoring and enjoying their lives while millions of men, women and children are mamed. They are as guilty as anyone else. Atleast BRICS are trying to stop the BS, instead Americans are still flocking to their new shepherd Grumpy and Hitlery, both of whom promise MOAR WAR and no American gets and questions them.

Grump has promised we will bomb the hell out of Daesh and everyone goes YAYYYY !!! what a bunch of retards

webdesignvalleys's picture

It is the same thing when I try to apply for the product of herpes cure 2017 and other things with this.

webdesignvalleys's picture

It seems to be weird that I can check to see what does my name mean about this case.

Syrin's picture

Disney and Miscrosoft are already looking to hire them.

de3de8's picture

And Donald will not be of much help

Syrin's picture

Hillary appreciates your support.

webdesignvalleys's picture

It is real cool when people can check and see the right one.

--------

Anna @ star wars t shirts

webdesignvalleys's picture

It is real good if people can do something like suggestion for solution.

 

----

Manna @ nightmare before christmas hoodie and nightmare before christmas costumes

KesselRunin12Parsecs's picture

Maybe there are a few openings over at FOXCONN to become a slave for Apple

https://demonsresume.files.wordpress.com/2010/10/the_happening01.jpg

silverer's picture

It's a cheerful "splash" page you land on.

KesselRunin12Parsecs's picture

It's your duty... To shake your booty... (jus doin' my job)

LawsofPhysics's picture

It's okay, they will get free housing in any one of a number of "ghost" cities, hence the GDP will actually grow....

Deus Irate's picture

I'll say it again: China is checking out of the Ponzi Hotel. They will feel a lot of pain as they go, but the grass is so much greener on their side of the road. 10 years and they will rule the world if they can slip free of the global bankster cartel.

Hitlery_4_Dictator's picture

Coming to a Country near you, I hope

Deus Irate's picture

"... when they were set upon twice by 'a group of young African masked men'."

Were they wooden African masks? Wonder if the fellas behind them masks were dark, swarthy or pasty? Might have been a better choice to wear balaclavas, but there is no accounting for taste.

peddling-fiction's picture

That seems to be deep state sending in goons.

LawsofPhysics's picture

Good luck to them!  Paper money was invented by the Chinese and their leadership has no tolerance for "revolutions".   they are ambitious, however, wake me when they actually back their currency with PMs and stop devaluing the fuck out of it...

E.F. Mutton's picture

You may be onto something.  The U.S. doesn't think past the next quarter - maybe they are playing the long game.

KnuckleDragger-X's picture

And China just finished changing out the generals commanding their 'security' forces to more dependable leadership, perfect timing......

CheapBastard's picture

China is sure a place of contrasts; On the one hand you have Billionaire communist gubmint officials buying multi-million dollar McMansions in Hongcouver, SF, Sydney and so on ... and then you have the billion or so of poor peasants who are still struggling to eat twice a day.

 

Something may crack over there as in the rest of the world which seems spinning into more and more chaos with global piss-poor leadership and moar wars.

KnuckleDragger-X's picture

We're approaching an entropic break-point and everybody at the top seems determined to push it farther on the assumption that they can control the avalanche and stop the tides.....

Vlad the Inhaler's picture

I wonder if they will turn towards socialism and fascism now.  Oh wait...

Goldbugger's picture

Look out for the FANG BAO.

Soul Glow's picture

Moar plastic rice!

Atomizer's picture

Catch the voter fraud on video. TX. 

starman's picture

I got an idea! Extend the fucking great wall!

fockewulf190's picture

...and get the Mongolians to pay for it!

Full Nelson's picture

6 million?

Quickly, someone at NRO write and print a Holocaust comparison!

silverer's picture

Sure wish they'd lay off six million government workers in the US.

DaveA's picture

Q: Some nations have enough capital to industrialize but not enough to support a welfare state. What happens when industry slows down and millions of workers lose their jobs?

A: Watch China and find out!

PerkyPooper's picture

Those are the weirdest solar panels i have ever seen!

Falconsixone's picture

I'm sure the prc army will put them to work since there are no jobs. War solves the powers problems. Just crash a plane and wave the flag when you need to destroy the youth.

CheapBastard's picture

They already have a plan:

 

1) control all media;

2) block 90% of the internet.

 

 

Why do you thnk everyone wants out of there.

SoDamnMad's picture

If a guy with a sledge hammer  ran at me to hit my shield, one .40 would drop him in his tracks. OK  Whose next?

Pumpkin's picture

Those 5,999,999 guys is who's next.