Without knowing the specifics it is probably pretty safe to say that laying off 5-6 million state workers in China, the Ultimate Cony Capitalist State is probably necessary. Saying that, one has to consider the disruption to these people’s lives and what that might mean politically. Even in a country of 1.3 billion people 5-6 million workers is a pretty big chunk. What do these people do? Presumably many bought living quarters in the great Chinese property bubble. Presumably they will have a hard time making payments. New means of employment will be necessary, but where do they go as the overall Chinese economy slows? What of the firms which shut down? What happens to the debt held by the state owned firms when they shut down?
China is going through considerable turmoil and it didn’t get to the current challenges overnight. Nor will it resolve its challenges overnight. There is lots of Styrofoam in the economy. Actually “Styrofoam” is the wrong word as Styrofoam is pretty durable. There is more accurately lots of cotton candy underlying the Chinese economy. But there’s nothing sweet about the stuff.
A second source with leadership ties put the number of layoffs at six million. Both sources requested anonymity because they were not authorized to speak to media about the politically sensitive subject for fear of sparking social unrest.
The ministry of industry did not immediately respond when asked for comment on the reports.
The hugely inefficient state sector employed around 37 million people in 2013 and accounts for about 40 percent of the country’s industrial output and nearly half of its bank lending.
It is China’s most significant nationwide retrenchment since the restructuring of state-owned enterprises from 1998 to 2003 led to around 28 million redundancies and cost the central government about 73.1 billion yuan ($11.2 billion) in resettlement funds.