Workers' Wasteland

Beijing's worst nightmare is that job warfare will spin out of control and combatants will challenge the government itself—that a countrywide labor movement will coalesce and become a destabilizing political force. To date, authorities have managed to contain the labor protests that break out like brush fires throughout the nation. It has helped that many laid-off workers are managing to earn enough at odd jobs to eat. "The private economy is providing enough jobs for people to live, so it's less urgent for them to protest," says Ching Kwan Lee, a sociologist at the University of Michigan who researches China's labor market.

Even so, this year, the government has faced its biggest outbreaks of labor unrest since the Tiananmen Square protests of 1989, with tens of thousands of workers simultaneously demonstrating against state-sector layoffs in China's northeastern provinces. Censors kept the news out of the official media—Jiang Xueqin, a Canadian freelance journalist who worked on this story for Time, was deported last week for helping an American documentary crew record a workers' demonstration. But the xiaodao xiaoxi, the news on the street, rings with fresh reports that quickly reach workers in other cities. In 2000, the last year of complete statistics, "labor disputes" of all kinds rose 12% to 135,000. "If the employment situation doesn't improve, there will be a serious impact on social stability," says Mo Rong, a researcher at the Ministry of Labor and Social Security. The DRC's Chen Huai warns, "When these people have nowhere to turn, they'll defend their rights, even with violence."

Increasingly, they have nowhere to turn. China lacks effective institutions that can administer job programs and stipends for the out-of-work. Beijing has been trying to placate the laid-off with severance pay on a case-by-case basis. But the country lacks a national unemployment benefits system—and state enterprises and local governments can no longer afford to support the jobless. Instead, Beijing plans to begin forcing laid-off workers back onto the job market more quickly by cutting their benefits, in hopes the idle will be motivated to find private-sector opportunities. In northeastern Liaoning province, the tarnished buckle of Manchuria's rust belt, the unemployed collect about $30 a month for two years. After that, they're on their own. The rest of the country will join the experiment next year. "I'm not optimistic the measure will solve much," says Luo Yuanwen, a professor at Liaoning University who monitors the results and reports back to Beijing. One reason: foreign steel will decimate mills like the Anshan Iron and Steel Works in Liaoning and its bloated workforce of nearly a quarter of a million people—according to official estimates, the foundry could cut 39 of every 40 workers and, by installing modern equipment common elsewhere in the world, still increase production. "There are too many people chasing too few jobs," says Luo.

The government is trying to buy time for a select few companies deemed too important to flounder. First Auto Group, the single biggest employer in Jilin province, is really a city: a population of 250,000 workers and dependents, 23 schools, a general hospital and a TV station beaming the latest company news to the world's most inefficient autoworkers. An average employee produces just two-and-a-half cars a year; a General Motors worker makes nearly 10 times as many. First Auto could easily cut seven of every 10 workers, estimates U.S. management consultancy A.T. Kearney. But the company muddles along through government subsidies, policy loans and profits from a joint venture with Volkswagen. So far, layoffs have hit only one in 10. "We at First Auto must be responsible to our staff," contends Wo Zongsheng, its deputy director of corporate strategy.

These days First Auto is an exception. Beijing is running out of resources and can no longer maintain life support for its relics. China's banking system has built a mountain of bad loans—nearly all to state enterprises that had little expectation of ever repaying them—that now totals as much as half of China's GDP. By normal accounting standards, the country's biggest state banks are insolvent. Then there's the debt China will incur when it has to follow through on promises to pay worker pensions, which equals another 70% of GDP, according to the World Bank. Add in debts that the government has raised by selling bonds—another 24% of GDP—and the country's balance sheet looks dicey. Alarmed by China's soaring debts, Finance Minister Xiang Huaicheng warned at a news conference this spring that the government must "make sure we don't spend like rich men."

Squeezing subsidies to state enterprises is necessary if China is to put its financial house in order. But the cost on the street is high. The jobless are deprived of services that were once free and that they can't afford themselves—like medical insurance. They are expected to buy their own, and those without it risk ending up like Zhao Honggang, who spends his days on a stinking cot in a bare room in an abandoned building at the Shenyang Antibiotics Factory in Liaoning. Doctors treated him briefly for electrocution after he touched a live wire while walking alone on a rainy night this February, then turned him out when no one paid the bills. Now he can barely walk to the toilet.

Before Zhao lost his job at the factory in 1998, it would have provided care for him. But without that or family support, his condition has drastically deteriorated. Suffering from severe burns, his blackened right arm twisted completely off in March. He keeps it in a bag across the room and spends his days slipping into insanity, babbling and eating steamed buns that former colleagues provide him. "He spent his life at the factory and this is how it cares for him," mutters one.

Today the great hope for China's able-bodied workers is the private sector, the fastest-growing part of China's economy. Private companies, ranging from the biggest real estate developers to the humblest street sweepers, provide a fifth of all recorded nonfarm jobs in China. There are twice as many private-sector jobs today as there were five years ago. Yet it's not clear that enough are being generated to keep pace with unemployment. Between 1997 and 2000, according to the Labor and Social Security Ministry, jobs in state-owned enterprises and collectives decreased by 43 million, or almost one-third. Over the same period, private-sector and other non-state jobs increased by about 16.5 million.

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