Premier promises a painless upheaval

As government leaders wrap up the annual National People's Congress in Beijing, their biggest fear is social unrest as a result of a slowing economy, especially in old industries that overproduce coal and steel.

'We must eat,' protesting workers chant as zombie industries cut pay, begin layoffs

Thousands of miners from the state-owned Longmay Mining Company protested in Shuangyashan City March 12 and 13 over layoffs, salary cuts and unpaid wages. (Hu De)

The protests started slowly and gathered steam. A hundred irate coal miners at the railway station, several hundred in front of government offices in Shuangyashan City in northeastern China.

By the weekend of March 12-13, eyewitnesses say, thousands of workers had left the mine shafts and were clashing with police, chanting, "We must live, we must eat."

They are angry that their wages were cut from 1,000 yuan a month to 800 yuan (about $160), furious that their pay often doesn't come at all and that layoffs have begun.

But there's more to it, 26-year-old protestor Hu De told CBC News in an exchange of text messages from Shuangyashan City.

"The strike is not only a protest over unpaid salaries," he says. "It also shows the fundamental problem of the economy, and the contradiction of different classes in China. This government is in financial difficulties, so we don't get paid." They work for the huge state-owned Longmay Mining Group.
Premier Li Keqiang gestures at the news conference where he promised, 'China's economy will not suffer a hard landing.' (Saša Petricic/CBC)

As government leaders wrapped up the annual National People's Congress in Beijing, this was their biggest fear: social unrest as a result of China's slowing economy, especially in old industries that overproduce coal and steel. 

Anger at the government and the ruling Communist Party is steadily growing. China Labor Bulletin, a workers' rights group based in Hong Kong, says there were more than 500 strikes in China this January alone, the highest level in five years.

In the Great Hall of the People, in front of hundreds of reporters, Chinese Premier Li Keqiang tried to reassure the country's workers and international financial markets.

"China's economy will not suffer a hard landing," Li said.

He insisted economic restructuring will go ahead, but that it need not be painful for workers. That's the kind language that makes Western economists and traders question whether Beijing is really committed to making the hard choices necessary.

"One thing is certain, we are determined to push ahead with our reform agenda," Li said. "We have selected the steel and coal sectors to start with the effort of cutting overcapacity. At the same time we will avoid a wave of mass layoffs." 
An old-fashioned coal mine is the type of industry that China is closing. (CBC)

China's challenge is massive. Its economy, once hitting annual growth rates of more than 14 per cent of GDP, is now struggling to reach half that. Li told the congress the target for the next five years is 6.5 per cent, though many Western economists think even that is too optimistic. 

Whether the economy can recover depends on whether China can remake itself from a manufacturer and exporter of goods to a provider of services and a marketplace with more than a billion consumers.

Some businesses are booming, like those designing mobile apps. But many others, called zombie industries, are mired in another era, endlessly spitting out steel, coal and other chemical products with no buyers — hundreds of thousands of factories and mines that employ hundreds of millions of workers.
'Yes, of course there will be pain' during economic restructuring, says political economist Ding Yifan of Tsinghua University. (Saša Petricic/CBC)

Li has presented a plan to lay off and retrain some 1.8 million Chinese, but that is considered a very timid start, even by experts here.

Ultimately, tens of millions may lose their jobs, more than the entire population of Canada.

"Yes, of course there will be pain," says Ding Yifan, a political economist with the National Strategy Institute at Beijing's Tsinghua University.

"Every time you do some restructuring work in some sectors, labour forces will be affected. And when you reach a certain age you may find it very difficult to convert yourself to other sectors, to other knowledge, to other skills." 

Ding says he expects there will be plans to help almost everyone who is laid off. He also believes Beijing won't shy away from closing hundreds of thousands of factories and mines, even state-owned enterprises that have so far resisted.
Flags fly outside the Great Hall of the People in Beijing, where the National People's Congress was held. (Saša Petricic/CBC)

Many Chinese companies have gone further into debt to keep operating. And some are now starting to use a new strategy to keep that debt off their books. They are issuing stocks to their creditors instead of paying off overdue loans.

China is also introducing a program to allow banks to sell bad loans to investors. Both these schemes would make the country's overall debt look smaller, but foreign observers say it would not actually improve the situation.

In fact, market observers who work in China say rising debt is what worries them most. Many won't go on the record, concerned about repercussions from the government.

But they point out that China has been using massive spending programs and corporate loans to keep its economy going even as customers disappear.
The biggest fear of government leaders is social unrest as a result of the country's slowing economy, like this protest at Shuangyashan City in northeastern China. (Hu De)

About the Author

Saša Petricic

Asia correspondent

Saša Petricic is the CBC's Asia correspondent, based in Beijing. He has covered China as well as reported from North and South Korea. He previously reported on the Middle East, from Jerusalem, through the Arab Spring and the Syrian civil war. He has filed stories from every continent for CBC News. Instagram: @sasapetricic


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