China Ready to Expand Stimulus Package to Curb Unrest

The Year of the Ox begins tomorrow, and it is already looking to be a rocky one for China. Massive layoffs of migrant workers and slumping industry has made …

The Year of the Ox begins tomorrow, and it is already looking to be a rocky one for China. Massive layoffs of migrant workers and slumping industry has made officials fearful of social unrest. An expansion of the stimulus plan announced last year may be under way to curb these probelms. For more information, read the following article from Money Morning:

In an interview with the Financial Times published Monday, Chinese Premier Wen Jiabao said his government is ready to expand on the $586 billion (2 trillion yuan) stimulus package it unveiled late last year.

The reason: Soaring unemployment and the threat of social unrest.

A recent government survey showed that slightly more than 15 percent of China’s 130 million migrant workers—about 20 million people—had lost their jobs and returned to the countryside by the start of the Chinese Spring Festival on Jan. 25.

That figure is double the previous estimate by the Ministry of Human Resources and Social Security, which said in December that up to 10 million migrants lost their jobs in 2008 due to the financial crisis. But analysts say the actual number of unemployed migrant workers is probably closer to 26 million.

Another 5 million to 6 million new migrants enter the workforce each year, Chen Xiwen Director of the Office of Central Rural Work Leading Group, a central government advisory body, told BusinessWeek.

"So, if we put those figures together, we have roughly 25 to 26 million rural migrant workers who are now coming under pressures for employment," said Chen.

Other government figures suggest that as many as many as 7 million workers a year have migrated from the countryside to fill factory and service jobs. And that could just be the beginning, as weak global demand for Chinese exports is having a profound effect on the nation’s once raging economic growth.

China posted its most severe foreign-trade decline in at least a decade in December. Exports, which have contributed around 20 percent of China’s economic growth since 2005, fell 2.8 percent from a year earlier, extending the 2.2 percent decline in November.

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With global demand stagnant, China’s gross domestic product (GDP) growth cooled to 6.8 percent in the fourth quarter, the weakest pace in seven years. That’s a steep decline for a country that has a strong track record of double-digit growth.

According to rough official calculations one percentage point of Chinese GDP growth creates around 1 million jobs, The Financial Times reported. If China’s growth drops below 6 percent, hundreds of thousands, if not millions, of more job losses can be expected.

A recent study by China’s Tsinghua University said that up to 50 million migrant workers will lose their urban jobs in 2009 if the downturn continues.

Premier Wen Jiabao: China WiIl take ‘Preemptive’ Action

Unemployment is more than a drag on the economy in China; it’s a threat to social stability. That’s why the government in Beijing is wasting no time—or expense—in ensuring that China’s economic prosperity continues.

"It’s fair to say the Party Central Committee is taking the issue of employment of migrant workers very seriously," said Chen Xiwen. "Ensuring job creation and job protection is to promote social stability."

China is already at work implementing the $586 billion (4 trillion yuan) stimulus package it unveiled in November. The cost of that plan amounts to a staggering 20 percent of China’s GDP.

But Chinese Premier Wen Jiabao said yesterday (Monday) in an interview with the Financial Times that the government might expand the plan even further to boost growth and trigger consumer spending.

"In meeting the financial crisis, it is imperative that governments must adopt a big enough package plan to stimulate the economic development," Wen told the Times. "Such a plan must be comprehensive and complete. It must target both the root causes and symptoms of the issues, and also take into account both immediate difficulties and long term development."

In the interview Wen outlined the several measures his country has already taken to stem the tide of the financial crisis, including:

  • The $586 billion investment program intended to stimulate domestic demand.
  • Another $88 billion (600 billion yuan) dedicated to scientific and technical innovation and upgrades.
  • And $124 billion (850 billion yuan) to improve the nation’s health care system.
  • In addition, Wen indicated that the government remains vigilant and willing to take preemptive action to stimulate growth.

"The financial crisis has not yet hit the bottom, and we will continue to follow very closely the development of the situation," he said. We may take further new timely and decisive measures…All these measures have to be taken preemptively before an economic recession, so as to maximise the desirable effect, otherwise our efforts will be wasted."

The government has already made rural economic stability a priority. About $54 billion (370 billion yuan), or 11 percent, of the $586 billion spending package has been allocated towards rural infrastructure projects to create jobs.

In a 28-point policy outline Beijing said it would also "skew" more budget and bond revenues to villages, increase agricultural subsidies, and put more money towards schools, clinics, and roads, Reuters reported.

"We must truly enhance our sense of crisis and take full account of the hardships," said the policy document. "Pay attention to rural social stability and appropriately address pressing conflicts and problems sparked by requisition of rural land, pollution, migration and resettlement, and handling of (village) collective assets."

In his interview with the Financial Times, Premier Wen confirmed that the government will inject $30 billion (200 billion yuan) into the Agricultural Bank of China, an institution that lends to the country’s impoverished rural regions.

"The China Agricultural Bank is the last among five national banks which is now undertaking a banking reform," Wen said. "Our decision for this recapitalization is around $30 billion."

This article has been reposted from Money Morning. You can view the article on Money Morning’s investment news website here.

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