What can China protests tell us about the state of economic stability?


Recently, much attention has been drawn to China's increasing labor protests.  According to the China Labor Bulletin (CLB), a Hong Kong-based NGO, 2015 saw over 2,700 incidents of worker strikes and protests, up from just under 1,400 in 2014.  Those numbers are a sizable leap from 185 incidents in 2011 after Beijing gave an unofficial nod to allowing worker strikes at foreign car companies in 2010.  Wage disputes and labor issues have risen as bloated, old-economy firms struggle through China's economic transition.

In fact, protests and civil dissent of all types have been on the rise in China over the years.  Heavy-handed crackdowns and policy shifts have followed.  The source and nature of dissent and concerns vary, from small local labor protests over wages, to tens of thousands marching in the streets in order to stop polluting factories from setting up shop in town.  But, left unchecked by Beijing, all sources of dissent could eventually lead to nationwide political movements, posing a threat to the supremacy of the Communist Party of China (CPC).  A look into sources of social unrest and Beijing's response to dissent might give us an insight into the state of China's economy.

China tightly controls the types of dissent around the country, increasing pressure on sensitive areas that would spread to a wider national political movement.  Most protests in China are not political, but instead directed at very specific grievances like residents evicted by local leaders, homeowners bamboozled by unscrupulous developers, or parents in fear of polluting factories.  It is the broader, larger protests that risk turning into political movements that frighten Beijing.

According to the Pew Research Center, corruption and pollution remain the top sources of discontent within China, and the Party has attacked those two issues to the detriment of growth.  Both corruption and pollution have motivated protests and online traffic enough to worry CPC leadership.  Worries over jobs and the economy probably do not pose a big enough threat to Beijing to pile on the crackdowns and political shifts to the detriment of growth and restructuring efforts.  Dissent over unemployment and the workplace are growing but remain localized and isolated to specific sectors.  Beijing will probably not turn back restructuring of bloated old economy sectors just yet.  If we start to see a broader and political workers movement, then we may see Beijing take a more assertive approach.

Significant pollution fighting underway

As pollution reaches deadlier levels (see my blog posting Recent Study: 1.6 million deaths each year across China can be attributed to air pollution.) protesting has heated up, like last summer when tens of thousands of protesters in Shanghai took to the streets for days to protest plans for contrcution of a paraxylene processing plant.

In 2013, pollution rose to the top of the list of reasons for protest.  That year a number of incidents known as "airpocolypse" pushed the environment to the top of the list of reasons for public dissent, beating out land expropriation as the number one cause of protests. In 2014 Li Keqiang announced China's "war on pollution" to counter rampant deadly pollution and appease a population increasingly worried about the environment.  That war will be costly, and has lead to the most ambitious green energy effort in history.  China's response to pollution will cost hundreds of billions, if not eventually trillions of dollars to fix over time. 

Massive sums and economic costs of fixing pollution problems are seen by Beijing as well worth it.  Air and water problems are a common and widespread source of discontent, and threaten to evolve into a more organized national movement.

Significant corruption fighting underway

Corruption is the primary complaint among China's population.  Local leaders stealing land from rural residents, young princelings flaunting Ferraris, and rich influential men seemingly above the law all have been widely publicized online.  Corruption is pervasive, well known, and highly publicized online. 

The population's concerns over corruption have not gone unnoticed.  Xi has made anti-corruption fighting one of his prime objectives since taking control in late 2012.  Anti-corruption purges of officials have been a win-win for Xi's regime, removing powerful officials like Zhou Yongkang and Bo Xilai from rival political camps in order for Xi to amass the most concentrated political power since Deng Xiaoping, and disarm concerns over corruption at the same time.

Corruption fighting has not been a zero-cost policy.  Consumption numbers and infrastructure investment have both been hit hard by the efforts.

Xi's high profile corruption fighting seems to be paying off with the population.  Corruption is seen as a problem, but Xi has convinced much of the population that his regime will fix it.  According to Pew, 63% see corruption improving in 5 years, with only 18% saying it will get worse.

Economic concerns and discontent are localized and not broad

Labor protests in China have accelerated as the economy is forced through a difficult transition.  Labor protests, much like the big drivers of China's broad growth, have diverged between the rapidly-growing and undevedevloped consumer and service sector, and the bloated and inefficient traditional industries that have kept millions safely employed years beyond the point of sustainability.

One-third of 2015's labor protests came from Guangdong (China's biggest manufacturing center), Hebei (China's biggest steelmaking region), and Henan (with its massive mining reserves).  One such protest happened in Heilongjian province's Shuanyashan mine.  Thousands of miners took to the streets, unhappy over claims of unpaid wages and pay reductions to 800 yuan a month from 1000, as reported by Rueters.  Due to the rapid drop in coal demand and Beijing's efforts to force overcapacity reduction, the mine's owners have reported losses since 2012 and have plans to cut its workforce by nearly 100,000.  

2016 will see labor unrest grow as leaders downsize debt-laden old-economy firms.  Reuters, citing anonymous sources, put the number of planned firings at 5-6 million over the next two years.  Forced mergers, deleveraging, and planned reductions of "zombie" firms will result in a continuous flow of jobs out of old-economy sectors.  Beijing's plan is to spend billions to retrain old economy workers for new-economy employment, similar to South Korean policies over a decade ago.

Incidents of labor protests in the service and retail sectors are minimal.  There were only 11 protests in retail all of last year, according to the CLB.  Out of Guangdong's 414 reported labor protests in 2015, only 42 came from the service sector.

Worries over jobs and the economy seem overstated outside of China's borders.  Unemployment remains on the bottom of Chinese lists of grievances, still overshadowed by corruption, pollution, and even traffic.  According to Pew, in 2008, 66% of all Chinese described their personal finances as good.  Last year that number was 72%.  Seventy-seven percent view their finances as better off than five years ago, with only 4% saying they are worse off.  

For now, localized labor dissent has been quelled by arrests and negotiations, and confined to old-economy sectors.  If labor unrest shows signs of becoming an organized and national political movement, as human rights and corruption have, then Beijing will probably use stronger medicine and contemplate roll-backs of reforms along with crackdowns.  But for now, social disorder is primarily localized and specific to downsized sectors.  On a broader level, worry over joblessness is on the bottom of a long list of concerns, indicating that worries over an economic crisis are overstated.