China Faces Struggle to Recast Steel Workers for Service Sector

28 March 2016

With millions poised to lose their jobs as China shuts down scores of underperforming mines and mills, Beijing has pledged to soften the blow, devoting a Rmb100bn ($15.4bn) fund to help “resettle” workers in the thriving service sector.

But a tour around Tangshan, China’s steel capital in Hebei province that lies some 260km south-east of Beijing, shows how optimistic such a plan is.

Even as Li Keqiang, the premier, vowed at his annual press conference earlier this month that China would avoid mass lay-offs, Qianan Zhayi Steel, a private mill in Tangshan, became the latest to start closing its blast furnaces for good.

Chen Jiyu, a chain-smoking welder at the plant, had expected the company to fold: it was clearly broke. But when the news actually came, he was left short of three months’ wages from the job he had held since leaving high school 10 years ago. He says he received no help from the government or the company: “I couldn’t sleep at all.”

Mr Li’s fund promises to help workers find new opportunities in the expanding service sector. Mr Chen, for his part, hopes his skills as a welder can be transferred to the motor industry. “Fixing rolling machines and fixing cars is about the same, right?”

Services account for a greater portion of China’s economy than the heavy industry that was once the pride of the Communist proletariat. But in struggling steel towns such as Tangshan, which recovered from one of the world’s deadliest earthquakes 40 years ago to produce almost as much of the metal as the whole of the US, that might not be enough to take up the slack.

Streets of vacant shops and restaurants flank Tangshan’s steel mills, with “To Rent” signs optimistically taped to dirt-covered windows. Blocks of half-built or empty apartment complexes encircle the city centre. As the pool of steadily employed labour dwindles, so does the demand needed to develop the service sector or spur more construction.

“History repeats itself,” says Aidan Yao of Axa Investment Managers Asia, who grew up in rust-belt north-east China during the 1990s, when the last round of industrial bankruptcies left about 30m workers unemployed. “The question is whether local economies can cope with the speed of adjustment.”

Already, lay-offs are well under way. The closure of Songting Steel in Tangshan’s Qianan district last November cost 6,000 workers their jobs, according to local press reports. The Hebei government expects 60 per cent of its steel companies to close or restructure over the next five years, deputy party secretary Zhang Qingwei said this week.

“The older workers will be the first to go. Yet the service sector is looking for younger, tech-savvy workers willing to work for less and for longer,” says Geoffrey Crothall of the China Labour Bulletin. His organisation has counted nearly 300 worker strikes in Hebei province since the start of 2015, among the highest for any province in the country.

Near Tangshan’s city centre, Mr Zhang, a 39 year-old engineer at Ruifeng Steel, spends his increasing number of rest days at home planning the business he hopes to start once he is made redundant.

Mr Zhang hopes to be a good example of Mr Li’s “innovation and entrepreneurship for the masses” campaign — an attempt to boost small business and start-up numbers. But by his own account, he is an exception.

“Most people I know who were laid off have yet to find a new job. Some have been searching for half a year, some a full year,” he says. “Of 100 people who are looking for jobs, it’s not 90 who find them, it’s 20 to 30.”

To head off protests, companies keep workers in the dark about impending cuts. Mr Zhang’s employer laid off some workers in November, spurring his decision to start looking for something else. “This year, they say there will be more [lay-offs] but no one knows when.”

The Rmb100bn resettlement fund would only cover about 11 months’ pay for 1.8m workers at the national average wage for state-owned manufacturers. Social security and retraining could raise costs further.

In Tangshan, it is rural migrants who struggle most when steel mills close. “They have little schooling and no real work capabilities,” Mr Zhang says. “They rely on selling physical effort. It’s absolutely hopeless for them.”

About 8 per cent of men in Hebei have no schooling, a proportion that increases for older workers. The average Hebei manufacturing worker’s annual salary of Rmb43,950 ($6,700) does not allow for enough savings to provide start-up capital for a new business such as a shop.

Instead, migrants try to make a living by visiting local “labour markets” — street corners where employers can pick up cheap work on an ad hoc basis.

Mao Guojiang, a migrant from north Hebei, comes to Tangshan for months at a time and pays Rmb6 a night to stay in “somewhat safe” but “grubby” local dormitory. He carries a plastic bag of personal effects with him so that he can accept immediately if a job opens up.

“Of course I prefer a permanent job, but the current circumstances make it impossible,” says Mr Mao, who once had a job in the steel industry but has no plans to go back.

Chances are he will earn more if he works day-to-day, he says. “[Chinese] new year came and the mill he worked at still wouldn’t give me any money. There was nothing I could do.”

China’s last great restructuring

In the late 1990s Chinese premier Zhu Rongji presided over a radical dismantling of the moribund state-owned industrial sector, throwing 30m state workers out of their cradle-to-grave “iron rice bowl” jobs. In some industries, the state factories have been entirely replaced by private companies but in heavy industry the state groups that survived the 1990s were consolidated and flooded with cash to create national champions.

Those sectors are now once again burdened with debt, non-productive assets and extreme excess capacity and current premier Li Keqiang is evoking memories of the 1990s to tackle it. Removing some of that excess capacity raises the spectre of another wave of mass unemployment, but China’s much larger economy means the impact may not be as profound.


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