World Economy

China to Lay Off 6m Workers

China to Lay Off 6m WorkersChina to Lay Off 6m Workers

China aims to lay off 5-6 million state workers over the next two to three years as part of efforts to curb industrial overcapacity and pollution, two reliable sources said, Beijing’s boldest retrenchment program in almost two decades.

China’s leadership, obsessed with maintaining stability and making sure redundancies do not lead to unrest, will spend nearly 150 billion yuan ($23 billion) to cover layoffs in just the coal and steel sectors in the next 2-3 years, Reuters reported.

The overall figure is likely to rise as closures spread to other industries and even more funding will be required to handle the debt left behind by “zombie” state firms.

The term refers to companies that have shut down some of their operations but keep staff on their rolls since local governments are worried about the social and economic impact of bankruptcies and unemployment.

Shutting down “zombie firms” has been identified as one of the government’s priorities this year, with China’s Premier Li Keqiang promising in December that they would soon “go under the knife”.

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. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.

The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40% of the country’s industrial output and nearly half of its bank lending.

It is China’s most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds.

On Monday, Yin Weimin, the minister for human resources and social security, said China expects to lay off 1.8 million workers in the coal and steel industries, but he did not give a timeframe.

The government has already drawn up plans to cut as much as 150 million tons of crude steel capacity and 500 million tons of surplus coal production in the next three to five years.

It has earmarked 100 billion yuan in central government funds to deal directly with the layoffs from steel and coal over the next two years, vice-industry minister Feng Fei said last week.

  Supplementary Loans

China’s central bank said on Tuesday it provided 35.6 billion yuan ($5.44 billion) worth of pledged supplementary loans to lenders in February.

There were 1.26 trillion yuan worth of PSL in the banking system at the end of February, compared with 1.22 trillion yuan at the end of January, the central bank said in a statement on its website.

The PSL program, initiated in 2014, is designed to help the central bank better target medium-term lending rates while boosting liquidity to specific sectors by offering low cost loans to selected banks.

  Factory Activity Shrinks

Activity in China’s manufacturing sector shrank more sharply than expected in February, surveys showed on Tuesday, prompting smaller companies to shed workers at the fastest pace in seven years and suggesting Beijing will have to ramp up stimulus to avoid a deeper economic slowdown.

Some investors had been bracing for weak readings after the central bank unexpectedly eased policy late on Monday, injecting an estimated $100 billion worth of cash into the banking system to cushion the pain of upcoming reforms such as restructuring bloated state enterprises.

The official Purchasing Managers’ Index fell to 49.0 in February from January’s reading of 49.4 and below the 50-point mark that separates growth from contraction. Economists polled by Reuters had expected only a slight dip to 49.3. It was the lowest reading since November 2011.