Tuesday, December 16, 2008

In China, anger rises as economy falls

china
STR, AFP/Getty Images
ERA OF UNCERTAINTY: The names of laid-off employees are posted at a factory in Dongguan, China.
The crisis in global capitalism has spelled trouble for the Chinese Communist Party, confronted by public unrest as factories shed workers and investments collapse.

By Barbara Demick, December 12, 2008

Reporting from Beijing -- The signs of discontent are small but unnerving in an authoritarian country where public demonstrations are not permitted.

Laid-off toy company workers smash windows and computers and overturn police cars in Guangdong province. Employees of a liquor company in Harbin travel to their company's Beijing headquarters to demand back wages. Taxi drivers, as many as 20,000 of them, scuffle with police in protests that have spread into seven provinces.

Even the police have gotten into the act. Auxiliary officers surrounded a Communist Party office last week in Hunan province to demand higher wages, said the Hong Kong-based Information Center for Human Rights and Democracy.

As China's economy hits the skids, such protests have been sporadic and usually involved fewer than 100 people. But in recent weeks, they have cropped up across the country like brush fires.

"Definitely, this is the most serious problem we have seen since 1989," said Zhou Xiaozheng, a professor of sociology at People's University in Beijing. "You have millions of college students who can't find jobs. . . . You have migrant workers who have lost their jobs at factories and don't have land to go back to."

It is counterintuitive that a global financial crisis that started with the excesses of Wall Street should be undermining the Chinese Communist Party. But academics such as Zhou believe that the economic crisis could present the leadership with its biggest political challenge since the student protests at Tiananmen Square nearly two decades ago.

To a large extent, China's fiscal problems pale next to those of the United States. The unemployment rate is not expected to top 4.5%, compared with the current 6.5% in the U.S. Although the World Bank recently slashed China's growth forecast for next year to 7.5% from more than 9%, even the lower figure keeps it at the top of the pack.

The problem is that ordinary growth might not be enough for a system that's been sustained by double-digit gains over the last five years. New York University economist Nouriel Roubini predicted last month in a widely quoted newsletter that without 9% to 10% growth, China is headed for a "hard landing."

Security in growth

It is the conventional wisdom that Communist Party rule has survived into the 21st century because of the nation's extraordinary economic growth. China watchers often speak of an implicit bargain between the people and the party: Give up demands for democracy and free speech and we'll make you rich.

"I think the leaders are scared stiff," said Susan Shirk, a professor at UC San Diego. "Certainly the Chinese Communist Party leadership believes there is a connection between economic growth, social stability and the survival of one-party rule."

Even members of the intelligentsia have become more vocal, demanding political change in a petition released this week that was modeled after the 1977 one that challenged the Soviet Union's domination of Czechoslovakia. "In the world, authoritarian systems are approaching the dusk of their endings," says the document, signed by more than 300 prominent people.

What makes the government especially vulnerable is that the people hurting financially have few legitimate outlets to air grievances. Unable to vote out their leaders, strike or collect compensation from the courts, they protest. And when the police wade in, things can quickly turn violent.

That's what happened Nov. 25 after 1,000 workers were laid off from the Kai Da toy factory in Dongguan, a southeastern city often called the real-life Santa's workshop because of the toys manufactured there.

As one former worker, a 36-year-old mechanic who agreed to be quoted by his surname, Zhong, describes it: A group of workers was in discussions with management about termination pay when a dispute broke out. "We saw the police beating five workers with sticks, several of them unconscious. . . . Then many workers rushed out and surrounded them. Later there were thousands of people there. They smashed police cars, doors and computers."

The economic downturn is hitting hardest in places like Dongguan, where factories once churned out toys, shoes and clothing to satisfy the seemingly insatiable demand of American consumers. Now demand has plunged because of the U.S. recession and the scandals over tainted foods and dangerous toys produced in China.

The Chinese government reported Wednesday that last month, for the first time in seven years, exports declined. In the toy industry alone, figures from the General Administration of Customs showed that half of the 3,631 companies had gone under this year.

Almost all of the workers who are losing their jobs are migrants who may not have any place to return to.

Zhong and his wife, who is seven months pregnant, came from an area in Sichuan province that suffered heavy damage during the May earthquake. "We are just wandering around now looking for work," Zhong said.

Fears of instability

This floating population of the unemployed and desperate is one of the government's nightmares.

"The redistribution of wealth through theft and robbery could dramatically increase, and menaces to social stability will grow," Zhou Tianyong, an economist for a government think tank, said in an editorial last week in the China Economic Times.

But it is not only the migrants who can turn unruly.

Young professionals trashed the showroom of a real estate complex called Glamorous City in Hangzhou, Zhejiang province, after learning that the developer was offering a 25% discount to prospective buyers of units they had paid full price for.

Middle-class Chinese are relative novices when it comes to investing, unaccustomed to the risks of real estate or the stock market -- and quick to blame the government when what they thought could only go up instead goes down.

The anger was palpable at a Beijing stock brokerage where investors sat on a row of orange plastic chairs, sipping tea from jars they'd brought from home and watching the latest indignities flashing on the electronic board of stock prices.

" Hu Jintao and Wen Jiabao did nothing to help," snapped one man in a voice that cut through the background clatter and made the others -- unaccustomed to hearing gripes against China's president and premier spoken so loudly -- turn around to hush him. ("Don't tell the foreigner too much about what's happening in China," hissed a woman sitting behind him.)

The 53-year-old man, who gave his name as Lao Yang, or "old Yang," agreed to lower his voice and the conversation continued. He lost seven years' worth of savings from his job at a machine components factory, which is now closed.

Others with him shared his fury -- retired factory workers, homemakers, a former post office clerk, all had lost large portions of their savings playing the stock market and felt the government had betrayed the laobaixing, the common people, by not protecting them.

"Some people lost everything in the stock market. They sold their homes and borrowed money," said Xiong Huanyong, 66, a retired post office worker. "They think there should have been more regulations."

A basic structural problem in the Chinese economy is that wages and living standards have not kept pace with the extraordinary growth. As a result, consumers aren't prosperous enough to pick up the slack and keep the economy rolling in the face of reduced demand from the United States and Europe.

The Chinese government has lowered interest rates several times, and last month announced a $586-billion stimulus package. More moves are predicted, but economists doubt their effectiveness.

"The government's economic policy is still geared to producing high growth figures, but not to producing jobs or raising people's disposable income," said Mao Yushi, a prominent Chinese economist.

Shirk, of UCSD, believes that protests will accelerate as workers realize such actions can help them get what they want. For example, the laid-off workers at Kai Da received severance of about $900 each after their protest.

But Shirk thinks the government will be able to manage the crisis as long as protests remain localized and the nation's leadership remains united.

"They learned their lesson from the Tiananmen period," she said. "As long as they can prevent public splits, throw the ringleaders of the protests in jail, blame the problems on local officials, they can probably hang together."