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