NYT Reports On The "Biggest Risk Facing China" As Beijing Launches "Unprecedented" Crackdown On Angry Workers

One month ago, in "The Biggest, And Most Underreported, Risk Facing China [10]" we laid out the laundry list of the most prominent issues that have troubled China over the past several years, to wit:

a slowing economy crippled by soaring debt, now over 300% of GDP
an economy which is overly reliant on fixed investment
an artificially high exchange rate which is adversely impacting exports and impairing trade, in a "beggar thy neighbor" world everyone is rapidly devaluing their own currency
the feedback loop of plunging commodity prices and highly levered domestic corporation which can not pay their annual interest expense payments at current prices of industrial commodities, leading to surging business failures and defaults
a burst housing bubble which recently popped (although slowly growing again)
a burst stock market bubble which recently popped (although slowly growing again)
non-performing loans, as high as 20%, and metastssizing across the Chinese banking sector

Many, if not all of the above have become conventional wisdom as the mainstream media has finally covered most of them, with its usual 2-4 year delay.

However, as we warned one month ago, one Chinese risk, perhaps the biggest one, which has so far crept 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.

To be sure, over the past few months we have chronicled several such incident which suggest that the labor market is rapidly becoming China's biggest risk factor, including:

The "Hard-Landing" Has Arrived: Chinese Coal Company Fires 100,000 [11]
Thousands Of Angry Unpaid Chinese Workers Protest Shocking Bankruptcy Of Major Telecom Supplier [12].
And earlier today, 600 Hungry, Angry Chinese Workers "Sleep On The Street" After CEO Disappears With Their Wages [13]

As we further noted last month, the best confirmation just how serious the employment situation in China is getting comes courtesy of the China Labour Bulletin website [10], which tracks the number of largely unreported labor protests and strikes across China.

We then demonstrated how deteriorating employment conditions have become a gaping risk for China's politburo by showing the total number of strikes over the past 5 years as of the end of October:

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Today we decided to revist the data from the strike data from the China Labor Bulletin and we found that not only has the total number of strikes in 2015 surged by over 15% in just one month to 2,334 from two thousand a month ago...

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.... but the number of worker strikes in November alone just hit an all time high [16].

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And as the chart of China's strikes goes increasingly exponential, others have finally started to notice.

Enter the NYT which overnight reported that "China Arrests at Least 3 Workers’ Rights Leaders Amid Rising Unrest [18]" in which it says that "police in southern China have arrested at least three workers’ rights leaders in recent days, labor groups and activists said on Saturday. The detentions come amid rising labor unrest in southern China, one of the world’s most important manufacturing centers, and are prompting concern that the Communist Party is extending its latest crackdown on civil society to a new arena."

Precisely as we said would happen, the rising labor discontent is forcing the government to retaliate. Only this time the Chinese government is hopeless: if and when the angry workers, several hundred million of them, decide to take their anger out on their communist rulers, not all the arrests in the world, not even the full mobilization of the PLA, will do anything to stem this unprecedented tide of bodies which, simply due to its vast numbers, is practically unstoppable.

The rest of the story is self-explanatory: during the good times, everyone was happy. But now that wages are sliding, and jobs are suddenly hard to come by, workers (many of whom recently fired), do what they do everywhere around the world: they get angry, go on strike, protest, and break or burn things down.

When the economy in Guangdong, China’s richest and most populous province, was booming, the authorities apparently did not see labor activism as a threat. After strikes by workers at Honda auto parts plants in the province in 2010, for example, many workers won higher wages and benefits.

But now, with many factories moving to regions where lower wages prevail — or to other countries, like Vietnam — labor unrest is rising, said Geoffrey Crothall, a spokesman for the China Labor Bulletin, which promotes independent labor unions in China and tracks strikes and other labor protests nationwide. Local governments in Guangdong are often the focus of workers’ demands after factory bosses leave town, sometimes with wages and pension benefits in arrears, he said.

Not surprisingly, the NYT used precisely the same source as we did a month ago, to reach the same conclusion:

According to figures from the group, the number of strikes and protests in Guangdong has more than doubled in recent months, rising to 56 in November from 23 in July.

“Clearly the rise in the number of protests and increase in labor activism has got the authorities worried,” Mr. Crothall said in a telephone interview. “They don’t know how to respond. And the only solution they can come up with is by cracking down on the people who are actually trying to help.”

Which, as we warned a month ago, is a huge problem for not only China's government but its economy.

One Chinese researcher on labor issues, who asked not to be identified in order to speak freely about the arrests, said that at least 16 activists had been detained or questioned and released in the crackdown on the Panyu Workers’ Center, or had disappeared with no information about their whereabouts. He said the detention of Mr. Zeng might have been a signal to workers not to get involved in labor movements outside the Communist Party-controlled All-China Federation of Trade Unions.

“They want to make an example of them for worker rights’ defense in the future — don’t get involved with these labor organizations,” the researcher said. “They realize that the economic slowdown and decline of industry is creating widespread bankruptcies and unemployment, and labor incidents will increase.”

Did we say the "biggest, most underreproted risk facing China"? Why yes we did. At least it is now being reported.

“There have been arrests and crackdowns before on grass-roots labor organizations here,” one activist, He Shan, said in a telephone interview from Shenzhen, a mainland city that abuts Hong Kong. “But this is the most concentrated, the most serious. For us, this is unprecedented.”

For now China is doing all it can to keep this critical story under the radar: "A call to the Public Security Bureau in Foshan went unanswered on Saturday. A man answering the phone at the Guangzhou Public Security Bureau referred a reporter to the police department’s propaganda office, where a call made after working hours went unanswered."

However, we expect that as more read our original piece and this NYT sequel, the reality of what is about to unfold on the ground in China will quickly shift attention from such trivia as insolvent commodity companies, manipulated markets, massive debt, and collapsing trade, and focus on the one risk that China has no way to "manipulate" under the rug - several hundred million very angry workers.

Finally, for those curious what happens next, the answer is still unclear but at least we now know why China's police was spending weeks last spring training for a "working class insurrection [19]."

For those who missed it the first time, here are the May 2014 Stunning Images Of Chinese Riot Police Training For A "Working Class Insurrection" [19]

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May 11, heavy rain, the Shenzhen Municipal Public Security Bureau carried out emergency disposal operations training activities. Participating in the training team for a variety of different emergencies riot synthesis disposal training.

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