ILO'S INTERMEDIATE ASSESSMENT OF CHINA'S RESPONSE

UNCLAS SECTION 01 OF 02 TOKYO 000267 SIPDIS E.O. 12958: N/A TAGS: ECON ELAB ENRG KTIP PHUM JP SUBJECT: ILO'S INTERMEDIATE ASSESSMENT OF CHINA'S RESPONSE TO THE ECONOMIC CRISIS TOKYO 00000267 001.2 OF 002 ¶1. (U) SUMMARY. The International Labor Organization's (ILO) preliminary impressions from three studies being conducted on the effect of the economic crisis on China, include estimates that 7.5 million migrant workers have already returned home, and that as the economy cools, another 20 million additional migrant workers will lose their jobs. Despite this, according to the ILO, because of a budget surplus, low public sector debt, and a state-controlled banking system that gives the government's monetary policy more leverage than other countries, China seems relatively well-positioned to weather the crisis. The ILO states that China's stimulus package includes measures to boost the rural economy and incomes, help for returning migrant workers, and a large component targeting responses to Climate Change, building low-Carbon economies, and environmental protection. END SUMMARY. 2.(U) In a lecture to the United Nations University (UNU) in Tokyo, Constance Thomas, Director of the ILO's Office of China and Mongolia, delivered early results from three studies being conducted on the effect of the economic crisis on China, as well as China's responses. These three studies are: a macroeconomic analysis of the Chinese economy, an in-depth analysis of the situation of both migrant workers and new post-secondary and university graduates attempting to enter the labor market, and an extensive survey of migrants at train stations as they returned to their homes for the Chinese New Year. According to Thomas, although the official unemployment figure is 4%, the Chinese Academy of Social Science's estimate for unemployment before the Chinese New Year is 9%, with other estimates significantly higher. Chinese GDP growth slowed to 6.8% in the fourth quarter of 2008, with the World Bank predicting 7.5% growth for 2009. ¶3. (U) According to ILO estimates, 9,000 of 45,000 factories in the cities of Guangzhou, Dongguan, and Shenzhen will close before the Spring Festival, with more expected to close after that. The hardest hit industries are, textiles, toys, and shoes, particularly those with foreign direct investment. The impact is now moving to service industries related to these industries. Regionally, the greatest impact has been on the coast, where most of the export industries are located, but it is now moving rapidly inland as workers look for work in other cities, and income from coastal jobs no longer makes it back to inland and rural areas. Thomas pointed out that the hardest hit industries account for less than 5% of China's total exports. The troubles of many low-value sector firms, she speculated, may partly reflect China's success in moving to higher value-added industries as even before the crisis, industrial restructuring was already underway. ¶4. (U) ILO's analysis is that China's initial economic stimulus package will have four main pillars: public works (including infrastructure and public housing for poor households); social welfare (including increased spending on health and education); tax reform (including VAT reform to encourage firms to upgrade their capital equipment); and measures to boost rural incomes (including raising the purchase price for grain and increasing subsidies for farmers). Other measures to protect the poor and vulnerable will include: expanding coverage of anti-poverty programs in rural areas (from 14.79 million beneficiaries to 43.2 million beneficiaries); subsidies for agricultural machinery purchases; a 13% subsidy for farmers purchasing household electronic appliances; a nationwide vocational training program; improved job placement and employment services; encouragement of hiring of migrant workers for infrastructure and post-earthquake restoration projects; and pre-employment training for young migrant workers. ¶5. (U) Thomas pointed out that, in addition to the new Labor Contract Law, which she said "opened the door to collective bargaining," the government is putting in place other measures to help enterprises safeguard employment. These include a temporary freeze on minimum wage adjustments, a reduction in medical and accident insurance premiums on a temporary basis (12 months),increased tax rebates for labor-intensive exporters, flexible working hours and pay for service sector firms, an enlarged unemployment fund that can be used as social insurance and employment subsidy to TOKYO 00000267 002.2 OF 002 businesses in financial difficulty, a national fund for employment that can be used as a training subsidy to businesses in financial difficulty, and urging of State Owned Enterprises (SOE) to avoid lay-offs. The All China Federation of Trade Unions (ACFTU) is also calling on social partners at the enterprise level to work for the survival of companies by agreeing to "joint commitment" demands designed to help minimize lay-offs. ¶6. (U) Thomas concluded by outlining the areas in which the ILO is an active partner with China. In line with the large part of the stimulus package that is devoted to climate change responses, the ILO is assisting China to create "green jobs," which it has identified as a growth area in a way that both preserves the environment for future generations and is more equitable and inclusive of a broader swathe of the population. The ILO is assisting the government and social partners to implement the Labor Contract Law so as to improve the rule of law in China's labor market, although Thomas states "actual instances of collective bargaining are still hard to find." Given the large number of unemployed migrant workers at risk, the ILO is also, with government approval, expanding its Prevention of Trafficking in Persons Project. NOTE: This cable was cleared by Embassy Beijing. END NOTE. ZUMWALT