Jobs: Now “Job One” in China

In order to meet the objectives of its various stakeholders–stockholders, employees, creditors, suppliers and anyone else with an interest in the company’s success–a company must run its business and perform according to a variety of metrics. Sometimes, however, circumstances become so critical that it must adopt an overriding, singular focus for the good of all. In the 1980s, at a time when the quality of its products was being called into question and foreign car sales were surging in the United States, the Ford Motor Company coined the slogan, “Quality is Job One” to emphasize Ford’s commitment to regaining its quality image.

In 2008, China’s government had to shift its economic focus based on changing circumstances. Last year at this time, it was cooling a red hot economy. In February it was controlling the worst inflation China had seen in ten years. In May, it was dealing with the aftermath of the devastating earthquake in Sichuan. And in August, it was all about ensuring a smooth Olympics. With the current global economic crisis having such a severe impact on China’s economy, make no mistake about it, jobs–both creating them and keeping them–is now “Job One” in China.

China’s government has said that its economy will grow by eight percent next year. This is the growth rate China’s leaders believe is necessary for the economy to absorb the millions of new entrants that come into its workforce every year and to maintain a stable level of employment. As we have heard from Prof. Yijiang Wang, professor of economics and human resource management at CKGSB, this is his principal worry for 2009.

Countries the world over are putting in place various types of stimulus packages to create new jobs. When he takes office, Presdent-elect Obama is expected to announce a package of infrastructure projects and stimulus programs that could exceed $1 trillion. An equal amount of attention, however, is also being paid to preserving the jobs that already exist in the economy, no matter the price. President Bush has agreed to a $17.4 billion bridge loan to tide General Motors and Chrysler over until the end of March. The reason: no one can even contemplate the consequences of putting at risk the 3 million jobs that the heads of the Big Three automakers say would be lost if they are forced into bankruptcy.

Even Canada is getting into the act, pledging to provide loans totaling 20 percent of whatever the United States commits. “We cannot afford, in the United States or Canada, the catastrophic short-term collapse of the Big Three automakers. The U.S. has signaled that they are not going to allow these companies to fail, and we will do our share of the North American package to see that this doesn’t happen either,” Canadian Prime Minister Stephen Harper said at a news conference on Saturday.

In 2009, expect the same in China. Every other issue in the country will be subordinated to the closely-related issues of creating and keeping jobs and maintaining stability. China has announced a 4 trillion yuan (US$586 million) stimulus package, but that is only the beginning. We are now seeing signs that China will back off on strict enforcement of key initiatives such as environmental regulations if they threaten job loss. In the interest of maintaining stability, government leaders will be very sympathetic to workers’ concerns. Faced with a series of strikes across the country, government authorities have been allowing worker protests and have been having high-profile meetings with strike leaders to talk over concessions.

A strike by nearly 8,000 taxi drivers in the southwestern city of Chongqing in early November helped spark the recent wave. After three days, the city’s top Communist Party official, Bo Xilai, held a three-hour meeting with cabbies’ representatives, televised live. Mr. Bo, who is also a member of the Communist Party’s powerful central committee, urged drivers to set up an organization to mediate between their employers and the government.

Under the current circumstances, I have several suggestions for foreign investors in China.

• If you are in a joint venture, now is not the time to be pressing for those labor-saving measures to increase its efficiency. In the best of times, Chinese partners and the local governments they answer to are sensitive to any job cuts that may threaten stability. In the current economic climate, expect the resistance to be even greater.
• If you have a wholly-owned company in China, be careful in how you implement any layoffs. In the face of uncertain economic prospects, Western companies will instinctively seek to adjust employment levels, which is understandable. Even though your operation in China may be wholly-owned, however, this will not stop laid-off workers from taking their complaints to the local government–and the government will be listening. Talk to your friends in the local government ahead of time so there are no surprises.
• Make the most of any expansion plans your business may have in China by publicly or privately announcing them. China has a long memory and remembers companies and individuals who come forth in difficult times.
• Watch China’s power consumption numbers. In the aftermath of the Asian Crisis, published figures for China’s economy were not always reliable. Astute analysts began to track growth in power consumption as a more reliable indicator of the economy’s performance. The same will likely be true in 2009.