The Observer: China fears riots will spread as boom goes sour

They surged into the grimy streets around the factory: first scores, then hundreds, then more than a thousand, as word spread and tension loaded the stale, grey air. The boldest overturned a police van and smashed up motorcycles, then tore through the building destroying computers and equipment. The mood was exhilarated, angry and frightened.

"It happened so quickly ... There were maybe 500 involved and another 1,000 watching them. People were yelling: 'It's good to smash'," said a witness.

But the riot late last year at the Kai Da factory in Dongguan, amid the grim industrial sprawl of the Pearl River Delta, was not an isolated incident. It was one of tens of thousands of protests, many erupting from the same mixture of economic grievances, resentment of police and swirling rumour.

The numbers have been climbing steadily for years. But as the Chinese New Year dawns and the global economic crisis deepens, the government fears that mass unrest could challenge its control of the country, threatening a communist regime that has embraced capitalism with spectacular results.

Today should be the highlight of the year for migrant workers in the country's southern manufacturing hub, but the hundreds of millions who have travelled home for their annual family reunion have little to celebrate. This is the year of the ox in the Chinese zodiac; a symbol of hard work and tenacity. But no one feels bullish as exports plummet and factories shut their doors.

Officials announced this week that growth fell to 6.8% in the last quarter of 2008. Enviable as that sounds to countries in recession, it follows five years of double-digit growth and rising expectations. Just as crucially, experts believe that China needs 8% growth to provide enough jobs for new entrants to the labour force. But economists predict that the rate could fall as low as 5% this year.

It is figures like these that prompted the state-run magazine Outlook to issue a remarkably stark warning of the dangers posed by rising unemployment.

"Without doubt, now we're entering a peak period for mass incidents ... In 2009, Chinese society may face even more conflicts and clashes that will test even more the governing abilities of the party and government at all levels," said a senior Xinhua agency reporter, Huang Huo.

"The key is going to be what happens in a week or two. How many people are going to come back? And are there going to be jobs for them?" asked Geoffrey Crothall of China Labour Bulletin, a Hong Kong-based organisation defending mainland workers' rights. "The most likely thing is that it will get heated after the new year. The government pulls out all the stops beforehand to make sure people have enough money to put in the red envelopes [traditional gifts] when they go home. It puts a false gloss on the real situation."

The unrest at Kai Da began as a dispute over redundancy pay, when the company refused to renew the contracts of several workers. It led to a scuffle in which workers claim, but police deny, that laid-off staff were beaten. "How could the workers not fight back? What else could they do to defend themselves?" asked an employee rhetorically.

That spirit has pervaded a spate of recent disturbances in Dongguan: protests outside government offices by unpaid workers; clashes with police as plants shut down. "Mass incidents", as officials describe them, have been on the rise for years. According to the Ministry of Public Security, there were 10,000 across China in 1994. By 2005, that had risen to 87,000. Experts believe the numbers have increased again, not least because the government has stopped publicising them.

Even in the boom years, China felt growing pains. Its frenetic development has created pollution, social dislocation, corruption and rocketing inequality. But it's the sharp decline in industry that is really hurting now. Pressures in the export-led Pearl Delta began to build in late 2007, as the appreciating yuan and growing production costs took their toll. Recession in the west was the final blow: exports actually fell in November, for the first time in seven years.

According to officials, more than 15,500 businesses in Guangdong province shut in the first 10 months of 2008. More than half of those went under in October. Many more are teetering. Thousands packed workers home without pay months ahead of the holiday.

Officially, the urban unemployment rate has hit 4.2%. But that does not include migrant workers, who are not registered in the cities. The Chinese Academy of Social Sciences puts the real level at 9.4%, and expects it to rise.

"The impact of the downturn has been huge," said Wu Qinfei who sells rich red-and-gold New Year decorations in Dongguan, just around the corner from the Kai Da factory. The banners bear wishes for wealth and happiness, but few expect the next 12 months to bring prosperity. "I've got maybe 60% of the business I had."

Trade was even worse at Old Chan's stall, where workers buy showily packaged oranges as gifts. "Before, we could sell 70 boxes a day at this time - now it's 20," he said. "We could charge them 27 yuan, but that's gone down to 15 or 16."

Chan's fortunes mimic those of Guangdong. When he first arrived two decades ago, the Kai Da plant was still under construction. "It was on the other side of a stream, and on this bank, there were no buildings, just fields of banana trees," he recalled. "In the 1990s, things suddenly became better as the factory brought more people. But this year's business is really, really the worst."

An hour's drive away, in the provincial capital, Guangzhou, Mrs Cui's eyes filled with tears as she contemplated thenew year. She and her husband were queuing for a train home to Shandong. "The family didn't have any money, so we came here to earn some selling flowers. We borrowed money from the bank and have lost about 30,000 yuan," she said.

Down the queue, Wei Xian is 40 years her junior; his punkish hairstyle and the two spikes through his left ear hinted at his newfound urban tastes. But he, too, was not coming back in the new year.

"I hope I can have a life in a big city like Guangzhou, but being a migrant worker is too hard right now," he said. "We were dealing in scrap and the prices plummeted, so they cut my salary by a fifth. My family have a farm and maybe I can run a small business there."

The government is happy to see them go. Liu Shanying, an analyst at the Institute of Political Science in the Chinese Academy of Social Sciences (Cass), says the unemployed are less likely to revolt at home. "People tend to behave themselves in such environments. When they work in other cities, where most other people are strangers, they may not care about what others think so much," he said.

Rural officials are trying to create work, investing in construction projects and running training courses on skills such as rabbit farming. But the villages do not look too appealing to most of those who have left. The urban-rural income gap is at a record high, with city residents earning more than three times as much as those in the countryside. Without the money sent home by migrant workers, the discrepancy would be far starker.

Many migrants have settled their families in cities; others are landless, having leased their plots to friends or family. Younger workers have no experience of farming, and less interest. And even as workers leave the Pearl Delta, others are arriving. "I worked here a few years ago and wanted to go home, but it's hard to find work in Guizhou and hard to find a wife, so I came back," said Lan Chengguo. His first factory closed soon after he joined; the second paid just 200 yuan a month. But now he had found a third job and said he planned to stay.

Like Lan, many analysts are optimistic. Guangdong has been badly hit, but some laid-off workers have found jobs elsewhere. A recovery is predicted in China in the second half of this year. And, if consumer confidence holds up, the rot may not spread.

"Large-scale unrest that threatens general social stability and overall investor confidence is unlikely," UBS economist Wang Tao wrote in a recent note. She pointed to the effects of the Asian financial crisis and the restructuring of state owned industries in the late 1990s. Some 35 million urban workers were laid off between 1997 and 2002, yet no major unrest resulted. This time, the government has more resources and has made it clear it will spend them. At one end of the scale is its four trillion yuan stimulus package; at the other, cash payments for laid-off workers in Dongguan.

But Victor Shih, assistant professor of political science at Northwestern University in Chicago, sees the potential for "explosive" change. He argues that unemployment could easily reach 50 million; that migrant workers are younger and more volatile than those laid off in the 1990s; and that news spreads faster thanks to mobile phones and the internet. The massive expansion in higher education has also led to millions of unemployed graduates - the most dangerous ingredient, in official eyes, given the student protests of 1989.

At the least he expects a spike in localised riots resulting in the mobilisation of armed police all over the country. And "if a systematic trigger occurs and instability spreads to a sizable city, we will see the large scale mobilisation of both paramilitary armed police and army units, and possibly substantial bloodshed," he added in a recent article. Yet he, too, concludes that a change in regime remains highly unlikely. China's leaders know better than anyone that their claim to authority rests on their ability to provide a good living. They are also particularly aware of this year's sensitive anniversaries, including the 20th of the Tiananmen protests and the 60th of the People's Republic itself.

So far there is little sign of workers blaming the government for their woes. Most cite the global downturn; many have gripes with employers or local officials. Few seem to connect it to Beijing, let alone suggest that new leadership would improve matters.

Nor are there signs of unhappiness and dissent becoming organised. Last November, a taxi strike in Chongqing prompted stoppages by drivers across the country, including Guangzhou. But it was copycat, not co-ordinated, action.

Similarly, there are few signs of workers and the middle classes forging links. Last month, 300 intellectuals launched Charter 08, which calls for multi-party elections and freedom of expression. Despite the detention of one of its authors and the censors' best attempts to scrub it from the internet, it has gathered more than 7,000 signatures. But so far it has had little impact outside the intellectual elite.

The authorities have also become far more sophisticated in tackling unrest. Recently, the minister of public security warned officials that their chief task was to prevent mass incidents from getting out of control. "Absolutely avoid inappropriate use of police, poor definition of their role and mishandling that exacerbates conflict, and absolutely avoid incidents of bloodshed, injury and death," Meng Jian urged.

The message appears to have registered at every level: "Even when people turned over the cars and smashed property - police did nothing to stop them," marvelled one witness to the Kai Da riot. "But there were plain-clothed policemen taking pictures who came and detained some afterwards."

Last year's riot in Weng'an in Guizhou province - which saw 30,000 take to the streets and the torching of government buildings over rumours of a murder cover-up - is instructive. It concluded not just with arrests, but with three apologies from the provincial leader to the city's residents. Local officials had been "rude and rough-handed" in dealing with former disputes, he said. Shortly afterwards, four senior officials were fired.

Even so, many China watchers predict a rocky year ahead. Groups such as China Labour Bulletin say the downturn threatens to derail the progress made by workers in recent years, with officials turning a blind eye to violations of labour laws. "The only way the government can prevent greater social conflict is by giving more power to the workers, not less," its director, Han Dongfang, wrote this week. "If workers have the right to negotiate as equals with the boss, the chances of disputes turning violent will be greatly reduced. If, on the other hand, the government ignores workers' rights and gives the boss free rein, the consequences will be very serious."

The government's distrust of rival organisations and civil society has left few channels for expressing frustrations: the risk is that they build to volcanic levels. Optimists hope that the downturn may prompt the country's leaders to address its underlying problems: restructuring industry, improving the social safety net, tackling inequality and protecting migrant workers.

That sounds naive to some, given the challenges facing the country. But Liu Shanying said the outlook for 2009 was better than it appeared. "According to traditional culture, people tend to see the extreme of adversity as the beginning of prosperity," he said. "Chinese people are stronger and more optimistic when we fight against disasters or misfortune."