Social Unrest in China

China is passing through its worst financial crisis in a century. The leaders of the country joined deputies to the Second Session of the 11th National People’s Congress (NPC), the country’s top legislature, in deliberating the Government work report by the Prime Minister Wen Jiabao recently and called for concerted efforts to overcome difficulties and achieve fresh development. President Hu Jintao said “challenges are really severe, opportunities still exist”, describing the current domestic and global scenario.

Until growth slowed to nine per cent in 2008, China had enjoyed double-digit expansion for the previous five years. The Government’s prediction for this year was more optimistic than that of the International Monetary Fund (IMF), which has forecast growth of just 6.7 per cent for China. But Communist Party officials said eight per cent growth was the make-or-break threshold for keeping the population satisfied and making sure that China does not fall victim to widespread rural unrest.

Need and Ability
The eight-percent target was proposed based on China’s need and ability. This target was well-grounded, though might be difficult to achieve. The Government pledged it will implement an even more proactive employment policy this year and allocate 42 billion yuan to offset unemployment caused by the global financial recession.

China would “give a full play” to the “leading role” of domestic demand, particularly consumer demand, in driving economic growth. To stimulate the economy against the crisis, China announced a four-trillion-yuan stimulus package November 2008, reduced interest rates five times since September 2008 and unveiled support plans for 10 major industries. Some of the measures are beginning to take effect.

Poor Underlying Policy
The real problem with this sort of rhetoric is that it is reflecting poor underlying policy. Too many Governments are unwilling to come to grips with the hard choices required to put the economy back on its feet. Consider what is happening in China and the US.
The US President Barack Obama, after all, has promised 3.2 per cent growth for a US economy that will struggle to avoid negative numbers in 2009. The Government of India, on its part, has similarly been one to two percentage points higher in its growth estimates than pretty much everyone else.

At the heart of the present crisis has been an enormous global imbalance. East Asians invested too much and consumed too little. Americans did the opposite. This imbalance was sustained by too much debt in the US and too much capital build-up in Asia. Eventually, bubbles formed and inevitably they popped. The overall fallout of the Chinese Prime Minister’s and the President Obama’s policies is that China invests more and the US saves less. This may give their economies a short-term boost, but will not put the world back on an even keel.



Employment Situation
China was yet to see the worst employment situation while its economy had shown signs of recovery, as the rebound of job creation was usually behind economic turnaround. The economy usually demand less labour after experiencing a crisis because it will see improved technologies, equipment and productivity.

The urban unemployment rate increased to 4.2 per cent at the end of 2008, up 0.2 percentage points year-on-year. The country aimed to keep its registered jobless rate below 4.6 per cent and provide nine-million new urban jobs in 2009. The Government would offer social security benefits and position subsidies for college graduates who take up jobs in public administration and public services at the community level.

The economy of China is the third-largest after Japan and the US and will play a pivotal role in helping drag the global economy out of its downturn. But, to the chagrin of the markets which had been hoping for another shot in the arm, the Prime Minister failed to announce any extension to the four-trillion yuan (£414bn) stimulus package unveiled in November 2008.

It would also take further steps to offset the rising number of unemployed, victims of a slump in the export market. Collapsing overseas demand for Chinese toys, shoes and electronics have caused the closure of 670,000 small and medium-sized companies. Officials estimate about 20-million migrant workers have already lost their jobs owing to the closure of export-dependent factories and many are now returning to their rural homes.

Nonetheless, some recent statements about the condition of various national economies have been startling in their distance from reality. This is partly incomprehension. After all, the world has experienced strong growth for about 15 years. It is not easy to digest to believe the good times are no longer rolling.