China Lawmakers Prioritize Welfare as Slowdown Threatens Unrest

By Dune Lawrence and Li Yanping

March 4 (Bloomberg) -- China’s parliament convenes its annual meeting tomorrow, seeking solutions to an economic slump that is fueling pockets of social unrest after 20 million workers lost their jobs.

Premier Wen Jiabao, who’ll kick off proceedings with China’s equivalent of the U.S. State of the Union address, may shed more light on a 4 trillion yuan ($585 billion) stimulus package and a campaign to expand health and welfare coverage.

“Circumstances this year are so different from any other year,” said Zhao Linzhong, 55, a National People’s Congress delegate from eastern Zhejiang province, an export hub where economic growth dropped by a third last year. “Despite the stimulus measures, most companies have to prepare to endure a long economic winter.”

Wen and President Hu Jintao, who are both 66, have called 2009 the toughest of the new millennium. Economic expansion in the world’s fastest-growing major economy has slid from 13 percent in 2007 to 6.8 percent last quarter, below the minimum 8 percent the government estimates is needed to create jobs.

The slowdown has rattled the Communist Party, which has ruled China since 1949 and bolstered its legitimacy in the past two decades by delivering greater prosperity. The global economy, mired in the biggest recession since the Great Depression, is also counting on China meeting the 8 percent growth target to help stoke a worldwide recovery.

“If you have one major economy, which is the third largest, that can hold up, that’s an achievement, that’s confidence boosting for the rest of the world,” said Bo Zhiyue, senior research fellow at the National University of Singapore’s East Asian Institute. “It is quite significant to look at China, because the worst scenario is that China’s economy collapses.”

Politburo Priorities

The Politburo, the party’s top decision-making body, said last week that China would counter the slowdown by “massively” increasing government investment and “greatly enhancing” social security in confronting an “austere and complicated” year.

Growth is collapsing as the fastest contraction in the U.S. since 1982 takes its toll on Chinese exporters including Lenovo Group Ltd., the world’s fourth-biggest personal-computer maker, which reported its first quarterly loss in three years and announced thousands of layoffs. Profit at the publicly traded unit of textile maker Furun Group, which NPC delegate Zhao chairs, plunged 80 percent last year.

With 20 million rural laborers who previously found jobs in cities now unemployed, and 7.1 million college graduates seeking work, authorities are alert to the danger of social unrest.

‘Mass Incidents’

“Mass incidents” may jump this year, the official Xinhua News Agency’s Outlook Magazine reported in January, employing communist code for riots and civil disorder. Politburo member and former head of public security Zhou Yongkang last month called on authorities to do “everything possible” to solve employment problems, in a speech published in the party journal Seeking Truth.

Last month, a clash between police and about 1,000 protesting workers from a textile factory in Zigong City, Sichuan province, left six demonstrators injured, rights group Chinese Human Rights Defenders reported. In November, police arrested 30 people in northwestern Gansu Province after rioters destroyed government property, Xinhua said. Labor dispute lawsuits surged 95 percent last year, the executive vice president of China’s highest court, Shen Deyong, said this week.

Wen on Feb. 28 strove to put a positive spin on the economic situation in his first online chat with citizens, saying government measures to tackle the financial crisis “have shown preliminary results.” Still, “we must be ready to take more forceful measures at any time,” he added.

Improved Disclosure

The nation’s leaders may choose to boost confidence by releasing more details of stimulus spending, or announcing a higher projection for the total outlay during the 10-day legislative session, Stephen Green, Shanghai-based head of research for China at Standard Chartered Plc, said in a note on Feb. 26. He cited unnamed officials as saying that stimulus spending may reach 8 trillion to 10 trillion yuan in the next two years.

“The attention now is on whether Wen will announce another package,” said Willy Wo-Lap Lam, an adjunct professor of history at the Chinese University of Hong Kong. “They need to keep up the momentum.”

Wen’s annual work report will also outline government efforts to expand welfare payments and coverage. The legislature will consider a draft social insurance law, which incorporates rural laborers who move from place to place into the pension system. The government in January said it would invest 850 billion yuan over three years to ensure that at least 90 percent of China’s more than 1.3 billion citizens have basic health insurance by 2011.

Deficit Spending

The government may need to run an unprecedented 950 billion yuan budget deficit to fund its efforts, according to the China Business Journal and Wen Wei Po newspapers. China’s shortfall this year will be 3.1 percent of gross domestic product, according to the median estimate of 12 economists surveyed by Bloomberg News. That compares with 12 percent in the U.S.

Improved social security is key to bolstering consumer confidence and boosting China’s domestic consumption, propping up growth after the global recession capsized exports, which slid 17.5 percent in January.

“Money spent on protecting the economic-growth rate is not necessarily producing new jobs, and that’s why the government needs to spend directly on those unemployed and on social security,” said Fan Jianping, chief economist at the Beijing- based State Information Center.

Zhao, one of 3,000 delegates to parliament, has come armed with 57 proposals, including additional export rebates on textiles, and said he’s eager to hear more from Wen.

“The premier’s work report will be focused on the bigger picture issues,” he said. “That big picture affects us all.”

To contact the reporters on this story: Dune Lawrence in Beijing at dlawrence6@bloomberg.net; Li Yanping in Beijing at yli16@bloomberg.net