China’s Economy: Some Investment and Coming Layoffs

Continental AG, Hanover, laid the foundation in Hefei, Anhui province, on October 10 for what is said to be its first Asian production site. Investment is 185 million Euros, and after completion in 2010, it could also become a base for further production sites in Asia. Conti plans to produce more than 4 million tires a year in Hefei New Technology Park, and more than 10 million tires in the long run.

In summer, the Association of German Engineers (VDI) estimated that every fifth German company that operates a production site in China is closing down there. But there are others that will be moving in, and chances are that their deliberations are more sober and less hype-driven than many investment decisions of recent decades (which could lead to much more sustainable cooperation). No news is as good or bad as first reported.

Nevertheless, times are – or will be – tough. The real economy in China’s South is pondering layoffs. The Baptist University and Hong Kong People Management Association interviewed 45 companies between October 13 and 17. Forty percent or 19 companies said they would scale down the pay rise while eight companies (17.8 percent) said they would wait and see. Another four companies (9 percent) said they were under pressure to lay off staff.

Decisions made in Hong Kong matter in mainland China, too – especially in China’s South. As local banks in Hong Kong have tightened their credit facilities, Hong Kong invested businesses in Guangdong which are dependent on credit are facing trouble.

According to a translation on cnguy.com, China’s national “job-waiting rate” among university graduates is around 15% and therefore above the average unemployment rate. The State Council’s China Development and Reform Commission estimated that in 2006 there were 25 million people competing for only 11 million jobs in urban areas, indicating that 14 million people were unemployed, accounting for more than five percent of the total 283 million urban workforce.

China Labour Bulletin, a Hong Kong based website, describes how China’s authorities define employment and unemployment in urban and rural areas.