(Yicai Global) Oct. 20 -- China faces a big challenge in reducing industrial capacity as not only is there a glut of coal and steel but as workers are laid off, the economy may not be able to absorb the large number of people becoming unemployed. Worse, it remains to be seen whether miners and steelworkers will receive any settlement plan.
Blast furnaces and coal mines were closed in Liaoning province, a north-eastern region that depended on the traditional industries. Now Lioaning is facing large numbers of workers migrating from the region to other cities including first-tier cities like Beijing and Shanghai, or even abroad to work in Japan as cabbage farmers.
Areas in a similar position to Liaoning, like the government face a crisis in dealing with the consequences of unemployment. The government did announce at the end of the first quarter that 1.3 million coal workers and 500,000 steelworkers could lose their jobs. They also set aside CNY100 billion (USD15.3 billion) over two years to relocate or retrain laid-off workers.
Energy production decreased more rapidly after mid-August, with the two industries of steel and iron and coal reaching over 80 percent of the annual energy production capacity cap by the end of September.
"The economy faces relatively big downward pressures, and some firms face difficulties in production and operation, which would lead to insufficient employment," Mr. Yin Weimin, China's minister for human resources and social security, said in March this year.
"Although CNY100 billion bonuses and contractual allowances are set to subsidize employee arrangement by the central government of China, local counterpart funds are still required. Rich areas can afford to match the funds, while the underdeveloped areas cannot." Due to this, local governments take the problem of employee settlements very seriously.
Although some companies have closed, a settlement plan for their employees has not yet been released due to a lack of funds and some workers have been told to wait ten days for a response to their complaints, a Yicai Global reporter found in an investigation.
Some companies are holding on and hope to get through the downturn period, yet expressed concern that if they terminate contracts with employees, it will be difficult to employ them again if business restarts when the economy experiences a growth period, our reporter found.
It is preliminarily estimated that 800,000 employees are involved in terminating excess capacity in steel and iron and coal industries in 2016.