China Layoffs: Why 5 Million People Are Set To Lose Their Jobs

China intended to quietly lay off millions of people over the next few years. However, that plan is out the window thanks to a particularly damning Reuters exclusive. Quoting “two reliable resources,” the news agency broke up talk of China’s plan — announced on Monday — to lay off as many as 1.8 million workers in the coal and steel industry.

Reuters called it, “Beijing’s boldest retrenchment program in almost two decades.” At the same time, there was an acknowledgement that the public estimation offered by Yin Weimin, the minister for human resources and social security, did not represent the true estimate of workers who will likely find themselves out of work in the coming months.

“The government plans to lay off five million workers in industries suffering from a supply glut, one source with ties to the leadership said. A second source with leadership ties put the number of layoffs at six million.”

These sources were not at liberty to speak openly about China’s layoffs and requested to be quoted anonymously. However, the second reason they didn’t want to be attached to the quotes is telling: Fear of social unrest brought on by mass unemployment.

Business Insider reports that China currently employs 12 million people in the coal and steel sectors. Secondary estimations would see the employment rate cut nearly in half within a few short years.

A report by Quartz would suggest this unfortunate outcome was inevitable. For decades, China heavily invested in “export-oriented manufacturing industries.” In fact, their low prices made the industry truly competitive on the global market. But a slowing global economy means slowing demand abroad. The heavy industrial sector was hit hard, with many factories now “operating at a loss” while being supported by the government.

The reality, as noted by Quartz, is that China can no longer afford to put off its goal of transforming from an “export-driven economy” to an economy based on “internal consumption.”

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China is desperate to avoid any outrage or hysteria associated with the impending layoffs. Yin told the press that an important part of the restructuring process would be resettling everyone who lost their job. “This task will be very difficult, but we are still very confident.”

There is some good news, in that the service sector in China has experienced rapid growth. According to Business Insider, it accounted for 50.5 percent of China’s gross domestic product (GDP) in 2015. With this area of the economy on the rise, it’s possible that new jobs will open up that will allow some workers to switch seamlessly to a new industry.

It’s also been noted that jobs in renewable energy aren’t expected to be profoundly impacted by China’s layoffs. China also views this area of the economy as prime for growth, and it might eventually prove to be an even greater source of employment than the service industry.

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As China prepares for the reality of millions of unemployed workers and the tackling of bad debt, it’s important to note that it’s not the only country struggling to cope with slowed global demand for “crucial raw materials.” Brazil and Australia are among those negatively impacted by downward trends. In fact, it’s one of the reasons that Brazil is in the midst of a “deep recession.”

As ruthless as China’s decision to lay off millions of state-employed citizens may seem — and as staggering as such a number may prove to be on a historic level — the alternative would be to stagnate until a domino effect leads to truly devastating economic collapse.

It seems that China is quietly trying to stay ahead of the problem, and keep the outcome from being as bad as it would be otherwise. It will be a few years before we know just how many jobs were lost or whether this measure was enough to help shift China’s economy in a more positive direction.

[Photo by Kevin Frayer/Getty Images]