China jobs: suspended production, extended unpaid leave embody woes with private businesses under pressure
- On paper, China’s urban surveyed jobless rate has stabilised over the past few months, but pressure persists to maintain jobs for small and medium-sized firms
- The private sector, long the backbone of China’s economic growth and job creation, is struggling and staff are being asked to take extended periods of unpaid leave
Overwhelmed by an ongoing real estate crisis, a privately run aluminium producer in China’s southern manufacturing hub of Guangdong has forced staff to take five months of leave on reduced salaries, shining a light on potential unemployment problems for the world’s second-largest economy.
China’s economy disappointed on many fronts in 2023, defying support measures and dampening its prospects, with the weakness putting pressure on employment, which has long been a priority for Beijing to create enough jobs to ensure economic and social stability.
We can’t find the owner
But there are worrisome signs that some companies have implemented months of unpaid leave or reductions amid a depressed market situation, and analysts have called for more policy support to revive domestic demand and stabilise manufacturing production.
With production suspended, staff who opt to remain employed by Golden World Innovation Aluminum have been told they will only receive 80 per cent of the minimum monthly salary of 1,900 yuan (US$266) allowed under the labour laws in Foshan, representing a third or less of their regular income, until the start of April.
“We can’t find the owner,” said a 50-year-old migrant worker surnamed Tong from the neighbouring Guangxi province, who has been working for the factory for nearly 10 years but has not been paid since September.
Golden World Innovation Aluminum did not respond to requests for comment.
Since 2008, Chinese provinces and cities have set up systems to monitor job position changes within enterprises, making public releases each quarter. But no statistics are available to gauge the overall scale of production suspensions or extended unpaid leave, except from company statements or media reports.
A labour market report by the Foshan government released at the start of November said the demand from manufacturing sectors in the city rose in the third quarter from a year ago, but still fell behind the services sector for two consecutive quarters.
“It indicated hefty pressure in operation for the manufacturing industries due to economic headwinds at home and abroad,” the local government said in the report.
The private sector has long been the backbone of China’s economic growth and job creation, but it has yet to fully recover, with its fixed-asset investment contracting by 0.5 per cent in the first 11 months of the year, in contrast with a rise of 6.5 per cent for the state sector.
The real estate crisis seemed overwhelming this year. Fewer and fewer workers are needed.
During the heyday of the property sector, Golden World Innovation Aluminum enjoyed strong orders, according to Tong, with the domestic market enough to offset external shocks, including tariffs imposed by the United States since 2017.
Skilled workers in their 40s could still earn over more than 7,000 yuan a month for working about 60 hours per week, he said.
But now, amid declining orders, the producer, which has a capacity to produce about 400 tonnes per month, is struggling to break even.
“When real estate was the most profitable industry in China, aluminium goods were needed everywhere and exported to all over the world,” Tong said.
“However, the real estate crisis seemed overwhelming this year. Fewer and fewer workers are needed.”
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The slump in the real estate market has deepened, despite Beijing’s move to loosen the reins, representing a major drag on the economy across a wide range of sectors.
In the central province of Henan, Yaxin Iron and Steel Group in Tangyin county also announced a suspension of production from last month until after the Lunar New Year holiday in mid-February, according to a female staff member, who asked not to be named due to the sensitivity of the issue.
Yaxin Iron and Steel Group did not respond to requests for comment after the news of the suspension was reported by China Industrial Securities Futures, an industrial analysis institution.
And Raymond Zheng, owner of a small piling company which drills foundations for buildings in Guangdong, had already placed most of his staff on unpaid leave since June.
“The funding chain is broken, and many companies, upstream and downstream, are facing solvency problems,” said Zheng, who also warned that a shortage of funds would compromise the quality of construction projects.
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Insufficient demand is one of the major risks hampering economic growth and external markets have been increasingly complicated and uncertain, but favourable conditions still outweigh unfavourable factors in development, the meeting said, urging for confidence.
And Peng Peng, executive chairman of the Guangdong Society of Reform, a Guangzhou-based think tank, said many small and medium-sized enterprises may not be able to survive this winter despite some signs of export recovery.
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“The authorities should pay attention to the severity of the economic situation,” he said. “It is urgently needed to increase the supportive policies.”
The slowdown has also been felt in other sectors, including electronics and plastics producers, as well as the printing industry.
Plastics manufacturers Shenli and Forward, as well as Good Printing, have also closed their Shenzhen factories, hitting thousands of jobs, local media reported earlier this year.
If confidence is unable to be revived, private entrepreneurs are likely to continue to lay flat
Promotion manager Liang Lu encountered the problem first hand at the start of December after attempting to visit three shoe companies in Dongguan, but finding out they had all suspended production.
The closures also affect nearby shops, restaurants and hotels that rely on workers for their incomes.
“It feels like many communities have become quiet in the city,” Liang said.
The problem, Paris-based investment bank Natixis said at the end of November, is that China has yet to find any emerging industries that are powerful enough to replace real estate as a pillar for the national economy.
And the government should guard against risks of further deterioration of investment conditions and funding difficulties for private business in 2024, according to a report by the Guangzhou Institute of Greater Bay Area.
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“If confidence is unable to be revived, private entrepreneurs are likely to continue to lay flat,” said the report by the think tank, which is led by prominent political economist and government adviser Zheng Yongnian.
A protracted weakness in private investment would result in a contraction of demand that may dent hopes for a solid economic recovery, said the report which was released at the end of November.
Xu Qiyuan, vice-director of Institute of World Economics and Politics at the Chinese Academy of Social Sciences, said in an article in October that the urban surveyed unemployment rate is likely to underestimate the current job pressures, with more gauges needed to better reflect the real situation.
“China still has sufficient policy room to grow the economy and realise high-quality growth,” said Xu.
