Worker unrest mirrors China’s falling growth rates. A growing number of labour protests in the private construction and manufacturing sector may cause the government to reconsider its plans for much-needed reforms in the state sector.

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The first day in May is the day when China honours its working masses. International Labour Day is one of the most important public holidays in the People’s Republic. But this year, the celebrations won’t be able to hide the fact that all is not well in the country that once portrayed itself as a communist workers’ and peasants’ state.

As the pace of China’s economic growth is slowing down, strikes by disaffected workers have been on the rise. The China Labour Bulletin (CLB), a Hong Kong-based workers’ rights group, registered a record number of more than 2,700 strikes and protests around the country in 2015 – more than twice as many as in the previous year. In 2016, the CLB reported about 1000 strikes so far.

Private enterprises, especially those in manufacturing and construction, are currently the target of most labour protests. The era of double-digit growth has ended, and in light of sharply decreasing revenues and profits, some companies have fallen behind on wage payments. Many of the workers taking to the streets right now demand payment of these wage arrears.

So far, these protests have been short-lived and confined to certain regions, but we may have only seen the tip of the iceberg so far. A further economic deterioration combined with China’s plans to reform its state-owned enterprises (SOEs) could cause the protests to spread much further and potentially even evolving into a systemic threat.

SOE closures could destabilise entire regions

Up until recently, workers’ collective action mostly aimed at better compensation and working conditions. But China has entered a phase in which labourers are fighting for their livelihoods.

The era of labour intensive manufacturing in China is coming to an end. Higher production costs and increasing automatisation are narrowing the job opportunities for low-skilled labourers. Many industrial workers find themselves on the wrong end of China’s attempt to transition to an innovative and services-based economy.

This development coincides with government attempts to downsize the state-dominated heavy industry sector. The Chinese government has announced to lay off 1.8 million workers in China’s the coal and steel industry. Other sources state that officials want to reduce the overall workforce of SOEs by five to six million within the next two to three years. Many SOEs are unprofitable, contributing to increasing government debt, overproduction and environmental degradation. But the planned closure of state-owned steel and coal plants can potentially destabilise entire regions. After all SOEs still employ about 20 per cent of the Chinese workforce, and the indirect employment effects are even higher.

In some ways the current situation is comparable to the period from 1997 to 2002 when the state laid off about 35.5 million SOE workers. But China’s economy was growing at double-digit rates back then, which meant that new low-skilled jobs in the private sector absorbed the unemployed SOE workers. This time is different: China is shifting its economic model to lower levels of growth, which will narrow the alternatives for affected workers.

Also, unlike migrant workers in private companies, employees of SOEs are often locally based and have no village or farm to return to. Consequently they have fewer means to support themselves or their families until they find new sources of income.

Worker unrest threatens social stability and CCP legitimacy

Today’s workers are unlikely to swallow all this without putting up resistance. They are well informed on relevant labour laws, and affordable smart phones allow them to network. Consequently they are more willing and capable than ever before to fight for their rights. Making formal claims is only possible through the “All-China Federation of Trade Unions” (ACFTU), a government-organized non-governmental organization (GONGO), which prioritises social stability over workers’ representation. Therefore spontaneous and sometimes violent strikes are often the only way for workers to make their claims heard.

At the same time it is safe to assume that China’s authoritarian regime also has the necessary means and methods at its disposal to suppress such protests or at least to prevent them from spiralling out of control. Striking workers can be charged with “gathering a crowd to disturb public order”, and employers frequently blacklist strike leaders, making it difficult for them to find new employment in the same region. Since January 2016, authorities have moved against the labour movement by arresting several prominent workers’ rights activists. Social media posts reporting on strikes and protests are largely censored.

But the strikes are a threat not only to social stability but also to a key source of legitimacy for China’s Communist Party. Even though the party currently purports to represent all of society, the official propaganda still romanticises the working class as an important pillar of Chinese society. Portraying itself as a guarantor of the workers’ wellbeing has its ideological downsides: even though workers rarely make political demands or organise across industries and regions, millions of unemployed workers who have nowhere to go will certainly damage the image of a caring party that wants to eradicate poverty by 2020. Contrary to that image, many Chinese workers see themselves economically even further disconnected from the more privileged urban middle classes.

Sustained social unrest caused by unpaid wages and layoffs in the private sector could therefore lead the party to reconsider its reform plans for the SOE sector. Faced with this unpleasant choice, China’s leaders would likely sacrifice efficiency as well as environmental and budgetary sustainability for social stability and ideological consistency. But it is a daunting policy dilemma. A delay of SOE reform may help mend relations between the Communist party and the working masses – but the medium and long-term effects on China’s economic system could be catastrophic.