Shortly after China’s announcement on Monday that it would be cutting 1.8 million jobs from state-owned enterprises — a move that observes have labeled “one of the largest single layoffs in history” — reports have surfaced that predict an additional five to six million possible job cuts in the next two to three years.
Two anonymous sources with ties to China’s leadership told Reuters that eliminating a measly 1.8 million jobs won’t be enough to alleviate China’s economic woes. China has seriously over-invested, leaving a substantial glut of capacity in the heavy industrial sector, forcing plants to cut their prices. Not to mention the damage done to the environment.
In extreme cases, “zombie industries” have popped up, in which companies have shut down operations, yet continue to pay employees in order to quell the fears of local governments worried about unemployment numbers and bankruptcy.
In 2013, this inefficient state sector employed around 37 million people, accounting for 40% of China’s industrial output. Economists believe that the overcapacity problems were intensified during the Hu Jintao and Wen Jiabao era when China reacted to the global financial crisis by stimulating its economy to the tune of 4 trillion yuan.
On Monday, Yin Weimin, China’s minister for human resources and social security, announced that to fix these problems up to 1.8 million workers will be laid off in state-owned coal and steel industries. He did not include a timeline for the layoffs.
However, in preparation, China plans to cut its crude steel production by 150 million tonnes over the next three years while also cutting its coal production by 500 million tonnes over the next five. Chairman Mao would not be proud. It has also announced that 100 billion yuan will be allocated as compensation to deal with the impact of the mass layoffs.
However, according to Reuters’ sources these efforts won’t be enough. One source said there will be five million layoffs in the coming years, while the other put the number at six million.