By Wu Qiang, March 17, 2015
As photos of the protests by Shuangyashan miners make the rounds on social media, we are witnessing a crucial turning point in China’s history: the beginning of a long depression, of the type predicted to take place in cycles by Russian economist Nikolai Kondratiev. After 25 years of continual growth beginning in 1992, China’s period of economic prosperity has ended, and now the decline has begun. China will face a future downward trajectory that will have far reaching implications for its own political system, and for the economic and political configuration of the world.
The problem is that this transformation won’t be peaceful. Instead, it will be marked by the kind of mass worker protests seen on March 12, in Shuangyashan, Heilongjiang (黑龙江双鸭山). Heilongjiang’s governor, Lu Hao (陆昊), addressing the press at the “Two Sessions” in Beijing, said of the province’s largest coal company: “The Longmay Mining Group has 80,000 coal miners, and as of this day they have not missed one month of salary or taken a single paycut.” Not long afterwards, thousands of workers took to the streets and to train stations, protesting Longmay’s withholding several months of salary, making it difficult for them to even cover living expenses. They held banners saying “Lu Hao Is Blatantly Lying,” and “We Want to Live, We Want to Eat,” demanding that they get their salary and social security payments. The protest was suppressed by thousands of paramilitary police, and dozens of the workers and residents who yelled slogans have been ordered to be arrested.
Just how this conflict will develop, or expand, has yet to be seen. The Chinese economy has been quietly approaching an inflection point on the Kondratiev wave for the last few years—but the Shuangyashan protest is a formal announcement of the beginning of the transformation: for a long period from here on out, economic depression will be accompanied by mass unemployment and continual waves of worker protests. Xi Jinping has been making alterations to China’s political model to prepare for a long period of economic decline that will, the regime hopes, not result in shattering its rule.
To begin with, this preparation comes from the economic theories of Li Keqiang known as the “Likonomics.” In 2013, just after Li Keqiang had become the Prime Minister, he proposed using electrical output, coal consumption, and rail freight volume as the three main indicators of economic activity—a means of sweeping aside the usual faked numbers and data used to calculate economic growth by GDP. The numbers showed that China’s production, import, and consumption of coal reached their peak and then began dropping in 2013. In 2014 and 2015 China’s coal output dropped 3.5% each year. The price of coal collapsed precipitously, and by the end of 2015 the pithead price of a ton of coal in Shanxi, a major coal producing region, sat at between 180 and 190 yuan. But the cost at large mines is 278-340 yuan a ton—meaning that there is about 100 yuan of loss for every ton of coal. According to figures from the China Coal Association published at the end of 2015, there were financial losses across 90% of the industry.
Meanwhile, although every year Chinese GDP growth figures only show a minor drop, the example of the coal industry shows that the circumstances are probably far worse. While China’s electricity consumption in 2015 dropped about 20%, another index that I have long observed—the consumption of instant noodles—appears to have begun its decline even earlier than coal. It’s been trending downwards for four years, dropping 10.6% industry-wide in 2014. The average number of packs consumed per person was 30, far less than the world’s number one, Korea (71 packs) and number two, Vietnam (60). In part there is no doubt that the widespread use of high speed rail has reduced the passenger load on regular trains, in which much of this consumption is done—but the more important factor is that it signals a reduction in the number of migrant workers, who have traveled from the countryside to the cities, providing abundant cheap labor to power China’s manufacturing economy.
In fact, the National Bureau of Statistics on April 29, 2015 published a report aimed at identifying the number of migrant workers. It said that though the number had seen a small increase, since 2010 its rate of growth has been in decline. Clearly this population is already insufficient to be relied upon for cheap labor. Or, perhaps, it’s the low cost of living, and the cheap cost of social welfare represented by instant noodles, that have been the prerequisites for 25 years of constant economic growth, or a period of “instant noodle prosperity.”
Strangely enough, “Likonomics” has all but faded in public discourse, while the “supply-side reforms” of “Xikonomics” is raising its head. So-called supply-side reforms refer to economic structural adjustments, reducing overcapacity, emptying inventories, and deleveraging—all these are part of the package of economic structural adjustments proposed by Xi Jinping in November 2015. This advanced version of “taking the old bird out of the cage and putting in a new bird” clearly aims at changing the structure of China’s economy, promoting clean industry, high-tech development, and attempting to reduce the emphasis on coal, oil, steel, and the other traditional backbone industries.
Late last year and early this year, mass layoffs were announced at Wuhan Iron and Steel, Panzhihua Iron and Steel, and PetroChina, and the closure of a number of wells at the Shengli Oil Field was announced. Before this, as early as 2013, Li Keqiang had begun work on rebuilding “exhausted resource areas,” and the transformation of shantytowns around mines and factories, investing a massive amount of capital, and carrying out preventative-style resettlement of the worker populations likely to be effected by the above industrial movements. Lu Hao, a rising political star with a Youth League lineage like Li Keqiang, was parachuted into Heilongjiang as all this went on to take over as governor. But the bad, ingrained habits of Heilongjiang, or the whole northeast, are hard indeed to overcome: in 2014 the cash losses at Longmay in Shuangyashan, the largest coal enterprise in the province, had already come in at 4 billion yuan.
To judge the Longmay incident and its fallout, we must examine the fate of a series of labor rights NGOs in China last year. In preparing for a long period of economic decline, Xi Jinping and Li Keqiang have been working in lockstep on precautionary measures: upgrading shantytowns in the mining regions on one hand, and on the other suppressing labor organizations. Staving off the impact of a declining economy is the most important mission of the current administration. A similar series of labor protests in the Pearl River Delta led to a comprehensive strike-hard campaign against labor NGOs. Clearly, given the serious fears that the highest leaders in China harbor against nascent worker movements, they’re willing to spare no effort.
All the same, the crackdown has not stopped self-organized worker protests. The Shuangyashan demonstration was on the surface triggered by a few hasty words from governor Lu Hao, but the deeper and more important point is that China’s period of “instant noodle prosperity” has finished. Now that the decline has set in, no system of wealth redistribution, or change in relationship between labor and capital, or between social classes and the state, will be able to compensate for the losses that will be suffered by workers as industries are eliminated. When the economy was on the rise, the compensation for urban dwellers and lower classes could be supported through selling real estate or revenues from emerging industries.
The previous Hu Jintao and Wen Jiabao administration’s “stability maintenance” policies were established in a period of prosperity, on the basis of preserving class interests. The current economic malaise is going to break all these old relations. As of now, apart from an ever-increasing cost of suppression, there is no negotiation over class interests or arrangements to alleviate the brunt of the slowdown. Thus, conflicts will continue to erupt.
All this is directly responsive to President Obama’s comments in a recent article in The Atlantic, a review of the president’s foreign policy: although Obama is satisfied with his success in containing China, he’s still full of concern about its coming economic downturn, and worries that it might spark conflict with the United States. He is worried that China’s internal conflicts will, whether directly or indirectly, impact international relations or even the global order.
The good news is, China’s economic slowdown will help realize the global 2030 emissions reductions goals sooner. But who can predict what changes the next ten years of “negative prosperity” will bring to China?
Wu Qiang (吴强), who taught political science at Tsinghua University until last year, is currently a freelance commentator and researcher of social movement.
Two recent short documentaries:
The end of the Chinese miracle | FT Features, Mar 9, 2016
In China, A Surge in Strikes, New York Times, March 14, 2016.
Also by Wu Qiang:
The Four Forces of China’s Politics of Smog, March 15, 2015.
Urban Grid Management and Police State in China: A Brief Overview, August 8, 2013.