China’s plan to slash crude steel production capacity could eliminate 400,000 jobs and may fuel social instability, according to the state-run metals industry consultancy.
Steel production capacity will be cut by 100 million to 150 million tons, China’s State Council announced Sunday without specifying a time frame. That will translate into as many as 400,000 lost jobs, said Li Xinchuang, head of the China Metallurgical Industry Planning and Research Institute, according to a report by the official Xinhua News Agency Monday. China will raise funds to help dismissed workers, Xinhua said.
China’s leaders have vowed to reduce excess industrial capacity and labor in state enterprises even as they battle the slowest growth in a quarter of a century. They are grappling with a delicate balancing act as they strive to restructure the economy away from investment-led growth without tipping it into a deeper slump.
"This is a positive sign for China’s adjustment to a slower, more efficient, economy, but we should wait to see how many of these job cuts are real," said Andrew Collier, an independent China analyst and former president of the Bank of China International USA. "The high levels of debt in China would be better used to support real and growing businesses."
Even more workers will be affected across related industries, Li said, according to Xinhua, and could potentially become a destabilizing force. "Large-scale redundancies in the steel sector could threaten social stability," Li was quoted as saying by the state-run agency.
Li confirmed the 400,000 job loss estimate in an interview Tuesday. He said the association estimates that there are 1.8 million workers employed by its members, which exclude private steelmakers. He declined to give an industrywide estimate.
China’s steel producers have faced slumping steel prices and the industry lost an estimated $12 billion in 2015, according to Rajiv Biswas, Asia-Pacific chief economist at IHS Global Insight in Singapore. The industry faces a long period of restructuring and consolidation with excess capacity of about 300 million tons, he said.
Coal production capacity also is to be cut on "a relatively large scale," according to the statement Sunday form the State Council, China’s cabinet.
The State Council meeting, led by Premier Li Keqiang, emphasized the need to redeploy or support employees cut by plant closures. Those measures should include proper payment of wages and social security, help starting new businesses or transferring to other industries, and ensuring that assistance is timely, the State Council said.
Global steel production fell the most in six years in 2015 with China making up the biggest decline, the World Steel Association said Monday. Steel output in the world’s largest producer and consumer of the metal shrank by 2.3 percent in 2015, the biggest drop in 25 years, to 803.8 million metric tons, according to Bloomberg Intelligence.
The easiest steel industry shutdowns are already done, HSBC Holdings Plc said in a note last month, warning large-scale layoffs may spark social unrest. Three million employees face layoffs if the steel, coal, cement, aluminum and glass industries cut production by 30 percent over two to three years, China International Capital Corp. said in a note this month.
Bert Hofman, the World Bank’s country director for China, Mongolia and Korea, said restructuring is difficult for affected workers, and the government’s priority is to protect people, "not inefficient enterprises that are contributing to overcapacity and deflation, which endangers otherwise healthy enterprises."
The projected steel industry job cuts amount to about 3 percent of total new jobs created last year, and less than 0.05 percent of the labor force, according to Hofman, who’s based in Beijing. China created 13 million new jobs in 2015.
"With the right support and retraining, many of the retrenched workers would therefore be able to find new employment," Hofman said. "And restructuring will free up capital that can be used for growing enterprises in new, promising industries."
The iron and steel sectors employ more than 6 million people, or about 4 percent of total industrial employment, said Wang Tao, chief China economist at UBS Group AG in Hong Kong. Closing excess capacity may eliminate more than 400,000 jobs, she said.
Chinese coal producer Heilongjiang Longmay Mining Group will cut 100,000 jobs, the official China Daily reported in September, quoting Chairman Wang Zhikui.
Worker protests and demonstrations doubled last year, to 2,774, with December’s total of more than 400 such incidents setting a monthly record, according to a report by the Hong Kong-based workers’ advocacy organization China Labour Bulletin.
Meantime, plans to cut the fat from state firms may be complicated by the need to arrange jobs for retired soldiers as the army plans to cut 300,000 troops in the next two years.
"If the Chinese government is serious about tackling overcapacity though, they ultimately need to shut down all money-losing firms, which would lead to millions in additional unemployment," said Victor Shih, a professor at the University of California at San Diego who studies China’s politics and finance. "I see the shutdown in the steel sector as a positive but modest first step."
A previous version of this story corrected the year of an employment estimate by the Iron and Steel Association.
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