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UNCLAS SECTION 01 OF 02 TOKYO 000267 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON ELAB ENRG KTIP PHUM JP
SUBJECT: ILO'S INTERMEDIATE ASSESSMENT OF CHINA'S RESPONSE 
TO THE ECONOMIC CRISIS 
 
TOKYO 00000267  001.2 OF 002 
 
 
¶1. (U) SUMMARY. The International Labor Organization's (ILO) 
preliminary impressions from three studies being conducted on 
the effect of the economic crisis on China, include estimates 
that 7.5 million migrant workers have already returned home, 
and that as the economy cools, another 20 million additional 
migrant workers will lose their jobs.  Despite this, 
according to the ILO, because of a budget surplus, low public 
sector debt, and a state-controlled banking system that gives 
the government's monetary policy more leverage than other 
countries, China seems relatively well-positioned to weather 
the crisis.  The ILO states that China's stimulus package 
includes measures to boost the rural economy and incomes, 
help for returning migrant workers, and a large component 
targeting responses to Climate Change, building low-Carbon 
economies, and environmental protection. END SUMMARY. 
 
2.(U) In a lecture to the United Nations University (UNU) in 
Tokyo, Constance Thomas, Director of the ILO's Office of 
China and Mongolia, delivered early results from three 
studies being conducted on the effect of the economic crisis 
on China, as well as China's responses.  These three studies 
are: a macroeconomic analysis of the Chinese economy, an 
in-depth analysis of the situation of both migrant workers 
and new post-secondary and university graduates attempting to 
enter the labor market, and an extensive survey of migrants 
at train stations as they returned to their homes for the 
Chinese New Year.  According to Thomas, although the official 
unemployment figure is 4%, the Chinese Academy of Social 
Science's estimate for unemployment before the Chinese New 
Year is 9%, with other estimates significantly higher. 
Chinese GDP growth slowed to 6.8% in the fourth quarter of 
2008, with the World Bank predicting 7.5% growth for 2009. 
 
¶3. (U) According to ILO estimates, 9,000 of 45,000 factories 
in the cities of Guangzhou, Dongguan, and Shenzhen will close 
before the Spring Festival, with more expected to close after 
that.  The hardest hit industries are, textiles, toys, and 
shoes, particularly those with foreign direct investment. 
The impact is now moving to service industries related to 
these industries.  Regionally, the greatest impact has been 
on the coast, where most of the export industries are 
located, but it is now moving rapidly inland as workers look 
for work in other cities, and income from coastal jobs no 
longer makes it back to inland and rural areas.  Thomas 
pointed out that the hardest hit industries account for less 
than 5% of China's total exports.  The troubles of many 
low-value sector firms, she speculated, may partly reflect 
China's success in moving to higher value-added industries as 
even before the crisis, industrial restructuring was already 
underway. 
 
¶4. (U) ILO's analysis is that China's initial economic 
stimulus package will have four main pillars:  public works 
(including infrastructure and public housing for poor 
households); social welfare (including increased spending on 
health and education); tax reform (including VAT reform to 
encourage firms to upgrade their capital equipment); and 
measures to boost rural incomes (including raising the 
purchase price for grain and increasing subsidies for 
farmers).  Other measures to protect the poor and vulnerable 
will include: expanding coverage of anti-poverty programs in 
rural areas (from 14.79 million beneficiaries to 43.2 million 
beneficiaries); subsidies for agricultural machinery 
purchases; a 13% subsidy for farmers purchasing household 
electronic appliances; a nationwide vocational training 
program; improved job placement and employment services; 
encouragement of hiring of migrant workers for infrastructure 
and post-earthquake restoration projects; and pre-employment 
training for young migrant workers. 
 
¶5. (U) Thomas pointed out that, in addition to the new Labor 
Contract Law, which she said "opened the door to collective 
bargaining," the government is putting in place other 
measures to help enterprises safeguard employment.  These 
include a temporary freeze on minimum wage adjustments, a 
reduction in medical and accident insurance premiums on a 
temporary basis (12 months), increased tax rebates for 
labor-intensive exporters, flexible working hours and pay for 
service sector firms, an enlarged unemployment fund that can 
be used as social insurance and employment subsidy to 
 
TOKYO 00000267  002.2 OF 002 
 
 
businesses in financial difficulty, a national fund for 
employment that can be used as a training subsidy to 
businesses in financial difficulty, and urging of State Owned 
Enterprises (SOE) to avoid lay-offs.  The All China 
Federation of Trade Unions (ACFTU) is also calling on social 
partners at the enterprise level to work for the survival of 
companies by agreeing to "joint commitment" demands designed 
to help minimize lay-offs. 
 
¶6. (U) Thomas concluded by outlining the areas in which the 
ILO is an active partner with China. In line with the large 
part of the stimulus package that is devoted to climate 
change responses, the ILO is assisting China to create "green 
jobs," which it has identified as a growth area in a way that 
both preserves the environment for future generations and is 
more equitable and inclusive of a broader swathe of the 
population.  The ILO is assisting the government and social 
partners to implement the Labor Contract Law so as to improve 
the rule of law in China's labor market, although Thomas 
states "actual instances of collective bargaining are still 
hard to find."  Given the large number of unemployed migrant 
workers at risk, the ILO is also, with government approval, 
expanding its Prevention of Trafficking in Persons Project. 
NOTE: This cable was cleared by Embassy Beijing. END NOTE. 
ZUMWALT