China has announced plans to implement 1.8 million job cuts in its coal and steel industries. The two sectors are rapidly becoming burdensome to the nation’s economy as home and global demands for construction materials falls. While making the announcement, China’s minister for Human Resource and Social Security, Yin Weimin, termed the new move as “a difficult task”, but one that must be completed under the prevailing circumstances. He however avoided mentioning when the program would take effect.
In the past, the Chinese government has capitalized on coal and steel produced locally to build industries within and provide direct employment for millions of people. Steel companies alone absorb at least 7.5 million Chinese workers.
Steel has also been a prime source of foreign exchange for China. In 2015 alone, shipments of the metal from the country to the global market rose by 25 percent. Demand for steel fell over the same period and is expected to move even lower in 2016. At a time when the country is experiencing the slowest economic growth in 25 years and facing import bottlenecks in areas like the US and the EU, retrenchment seems to be the only option on the table.
Increasing Hostility to Chinese Exports
China has faced growing market hostility from its export zones. Many global stakeholders have blamed the country for influx of cheap, government subsidized steel in their economies, which in turn has led to death of local industries.
Both the US and European Union are toying with the idea of increasing tariffs on Chinese metal imports, despite the fact that Chinese goods are among the most highly taxed in the region. Governments claim that such plans are meant to protect local industries and counter the increasing rates of unemployment.
Rising Unemployment in EU
It is reported that at least forty thousand steel workers in Europe have lost their jobs over the recent years due to influx of cheap metal from China. According to the UK Steel Association, China currently supplies 45% of the UK market with steel. Many steel companies that rely on the UK market, including Caparo Industries, Tata Steel and ArcelorMittal, have had to close down plants, trim down their workforce, or apply for bankruptcy.
Although some EU members have expressed reservations towards the proposed 13% tariff on China metal imports, the attitude in the US towards the suggested 236% maximum duty has generally received a welcome response.
The Labor Situation in China
The apparent decision by the government to hold back information about the exact dates when retrenchments will be implemented is probably intended to reduce panic. Since 2013, labor unrest in China has increased, with calls for higher wages and better working conditions topping the lists of demands by unions. With regard to minimum wages, campaigns by trade unions have born some fruits as more employees now receive higher payments than they did years back.
On the other hand, the rise in minimum wage has seen many people lose their jobs.
It is interesting to note that All-China Federation of Trade Unions(ACFTU) – the mother of all trade unions in China- is not an independent organization, at least according to definitions by the International Trade Union Confederation. All trade unions in China are required to register with ACFTU. And though this has resulted in general dissatisfaction, as the organization is considered essentially a government tool, it is still interesting that it has successfully mounted pressure on the government to increase wages in the past.>Layoffs Could be Destabilizing
Apart from the falling demand for their products, steel industries in China have also been criticized for wasteful usage of funds. By trimming them down, the government will move a step ahead in fast tracking its resource conservation goals.
Whichever way you look at it however, mass retrenchment in coal and steel industries is going to create a storm if not handled cautiously. The government might have to put more effort to convince the workers to accept smaller layoff packages.