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AS THE lunar new year holiday winds down in China, millions of workers are expected to stream back from the countryside to jobs in the cities. But in Xinji, a fur- and leather-processing city in northern China and a big producer of holiday fireworks, there will be little to go back to. The global economic crisis has dealt a hefty blow to this once booming city.

China's leaders are struggling to cope with the biggest upsurge of unemployment the country has faced in years. Migrants from the countryside, the main source of labour for export-oriented industries and construction sites, have been the hardest hit so far. Millions have been thrown out of work. Urban white-collar workers, for years pampered by double-digit growth, speak of shrinking bonuses and frozen wages. Some are losing jobs, too. Students, whom the government always fears upsetting, face the most difficult employment prospects since the upheaval in Tiananmen Square 20 years ago. As the Communist Party prepares to celebrate 60 years in power on October 1st, it worries that citizens will be in a fractious mood.

Xinji sits about four hours' drive south of Beijing, in the dusty plain of Hebei province. It is typical of China's many fast-emerging cities, driven by the big ambitions of local governments. It is now just as typical of the many Chinese boomtowns that are hitting the buffers. Xinji has suffered badly from falling demand for its clothing exports. By November, most of its factories had closed two months earlier than normal for the spring festival break. Tens of thousands of workers went back to their nearby villages, expecting to return after the holiday. Many won't do so.

This is a huge problem for Xinji's government, whose aspirations are symbolised by the city's new town with its broad boulevards, an Eiffel-Tower-like structure at one crossroads and a rocket-shaped protrusion on top of the leather-clothing exhibition centre. It had been planning for an average of 13% growth a year for the rest of the decade. When thousands of Chinese factories began to halt production late last year as export orders dried up, much attention focused on the travails of Guangdong, an export-driven southern province bordering on Hong Kong. Several protests broke out as factories there closed down, leaving employees unpaid. But after making their point, many of the workers departed for their home villages in distant inland provinces. Xinji's workers are mainly local. It cannot shed its difficulties so easily.

Nor can many other towns and cities across China. Figures relating to the country's migrant labour force are vague. But officials believe that of more than 200m non-agricultural workers from the countryside, more than 80m work close to their villages. The proportion working closer to home has increased in recent years, as more jobs have appeared inland that offer better conditions than factory work in Guangdong and other places on the coast.

In Maoying village on the edge of Xinji, next to a leather-processing zone, the Communist Party chief, Li Qiangbao, says 400 villagers would normally be employed in nearby factories. Mr Li says he thinks many of them will still be able to find at least some work after the holiday, but they will be earning less. This may be over-optimistic. Marc Blecher of Oberlin College says Xinji is a good example of “market Leninism” in China. Its government-inspired focus mainly on one line of business helped it prosper, but may be its undoing.

In the early 1990s local leaders decided that Xinji's future lay in leather and fur. They compelled the area's widely scattered village-run tanneries to consolidate and move to new industrial zones where, supposedly, they could enjoy economies of scale and control pollution better. They established a huge leather and fur-trading centre and encouraged entrepreneurs to look abroad for markets.

Most of Xinji's fur and leather exports ended up in the former Soviet Union, Russia in particular. To get around slow and cumbersome customs procedures, most Xinji exporters hired Russian middlemen with government connections to speed things up. Officials worried about this capricious system and an over-reliance on Russia, but quality was not quite good enough for a big push into Western markets. The city prospered anyway. By its own reckoning, Xinji's economy grew by 13.4% in 2007 (close to the national rate), with leather and fur products making up about 80% of its exports of more than $200m. Until the global crisis hit, around 80% of these products were sold abroad.

“Protect Eight”

Chinese officials—Xinji's included—often proclaim that high growth is crucial for social stability. They say that 8% is the minimum needed to prevent joblessness from triggering serious unrest (more serious, that is, than the tens of thousands of mostly small protests that occur every year in China, even at the best of times). The figure may be arbitrary, but the frequent repetition of the “Protect Eight” mantra sends a clear signal to local authorities that they cannot afford to slacken. Most of them have aimed for, and achieved, much higher targets in this decade.

The governments of Xinji and many towns like it must now be worried. Early this month Xinji's party chief, Zhang Guoliang, told a gathering of senior officials that maintaining high growth remained “an unshirkable task”. But he lowered his sights. In 2009, he said, Xinji would strive for 10% GDP growth along with an 8% increase in farmers' net incomes and an 11% rise in urban disposable incomes. In a city of idle or semi-idle factories, this still sounds ambitious. In the past Xinji has found it hard to benefit from export-tax rebates, such as those announced by the central government late last year in an effort to revive labour-intensive industries. Because of the dodgy methods used to ship goods to Russia, there are no receipts for claiming the rebates.

China's system of residential registration, a legacy of the Mao era that divides citizens into urban and rural according to their parentage, means that workers from villages around Xinji who work in the city's leather factories remain, technically, farmers. Their wages are therefore counted in the farmers' net income category. (Xinji, like all Chinese cities, includes an urban area and a much larger rural hinterland. Its official urban population, including “farmers” who have stayed longer than six months, is around 200,000. More than 400,000 live in the countryside.) This makes Mr Zhang's income-boosting goal an especially tough one. About a third of the income of Xinji's “farmers” derives from the leather industry. In Maoying village around two-thirds comes from leather and other non-farming work.

Zhang Jianmin, of Minzu University in Beijing, reckons that around 10% of Chinese workers from the countryside who are employed beyond their home areas will be out of a job this year—about 15m people. Officials have little idea what will happen to them. Many, they hope, will scatter across the countryside where, though disaffected, they will at least have food and shelter. Another Maoist legacy is the entitlement of those classified as rural dwellers to the use of a piece of land. It is usually tiny, but big enough to live on.

In recent years, however, millions of farmers have lost all their land to relentless urban expansion (local governments have profited massively from selling appropriated rural land to developers). Many of these farmers have been absorbed into the urban workforce, but often not into urban social-security schemes. They face a perilous future. Millions of jobless migrants may well remain in cities, if not protesting then at least pushing up crime rates.

The central government is anxious to cushion the blow. It has made it easier for farmers to register new businesses and has encouraged banks to lend them money. Local authorities say they are providing free job training for returning migrants. President Hu Jintao has just announced big increases this year in agricultural subsidies.

But there are reasons to be sceptical. Few rural folk may be keen to start new businesses during a slowdown, even if the state-owned banks are willing to lend to them (most farmers have little to use as collateral, since their land-use rights cannot be mortgaged). Local governments in poorer provinces, where most migrant workers come from, may well balk at spending more money on training at a time when their revenues are falling. One Chinese newspaper said boosting grain subsidies would probably be offset by the continuing high cost of fertiliser.

In Maoying village a poster announces a plan to boost benefits for participants in a new rural health-care scheme, which has been rolled out across the country over the past few years. Yang Lianyun of the Hebei Academy of Social Sciences says that government subsidies for this scheme have increased by 50% this year in Shijiazhuang prefecture, to which Xinji belongs. But the impact of this may also be less than meets the eye. Even with such increases, rural residents still have to pay a large part of hospitalisation costs out of their own pockets. Some prefer not to go. On top of a 4 trillion yuan ($585 billion) stimulus package announced in November, the government said on January 21st that it would spend 850 billion yuan on extending health insurance to more than 90% of citizens over the next three years. But details of both plans have yet to be announced.

Barber-shop discontents

The government has some grounds for hoping that it can weather the rural storm. Vague and incomplete government statistics suggest that protests have been rising generally in China in recent years. Most of them have occurred in rural areas, often as a result of land seizures. In a barber shop in Maoying, customers fume about pollution and local corruption (sentiments echoed on local internet forums). But protests have been directed against local governments and have not explicitly challenged the Communist Party's monopoly of power. There is also little sign of co-ordination among different disaffected groups.

With some notable exceptions, the party is getting better at handling unrest. In Hebei province the authorities are keen to maintain social calm, since the province surrounds the capital as well as the port city of Tianjin. Directives on dealing with “sudden incidents”, issued by Xinji last year, repeat the central government's constant slogan that “stability is paramount”. They stress the need to placate protesters rather than respond with force.

Rural China is no stranger to sharp employment fluctuations. In 2003, during an outbreak of SARS, many migrant workers were forced to return to their villages for several weeks. Migrants in and around Beijing also experienced severe disruption before and during the Olympic games in August last year, when the government ordered the temporary closure of many dirty industries and restricted movement to the capital. Neither episode triggered serious unrest, despite the blow to incomes.

In the late 1990s, even amid the Asian financial crisis of 1997-98, China resolutely carried out a massive restructuring of its state-owned enterprises (SOEs). Some 40m lost their jobs. As many people lost their jobs each year as the number forecast for migrant labourers this year. It was traumatic for those involved, who (unlike today's migrant workers) believed that they enjoyed jobs for life. Protests were frequent; some, in the rustbelt of the north-east in 2002, were the largest China had experienced in many years. The unrest was urban, close to seats of party power and embarrassing to a party that prided itself on being the champion of the proletariat. Yet, apart from an adjustment of party rhetoric that year towards a more pro-poor line, the political fallout was minimal.

But there are important differences between then and now. For one thing, the SOE restructuring hit blue-collar workers hard even as the middle class—a new pillar of support for the party—was beginning to grow and flourish. At the same time as closing down, selling off and merging SOEs, the government virtually gave away the housing stock attached to them. This ensured that laid-off workers still had somewhere affordable to live (they also got subsistence payments that today's migrants would envy). And it gave the new middle class an asset base that would soar in value—until, that is, the deflation of China's property bubble last year and the onset of the current crisis.

Restless citizens, dangerous students

Now the party faces broader discontent. China's notoriously contentious unemployment figures, which do not cover migrant workers (no statistics are published for rural joblessness), look rosy beside those of some Western countries. But they suggest a growing problem. On January 20th the government said the urban unemployment rate in 2008 rose to 4.2%, up from 4% the previous year and the first increase in five years. The government's target for this year is to keep the rate below 4.6%—the highest figure since 1980.

EPA

Idle graduates find a new occupation

In Xinji it is the relatively pampered urban workforce (by official classification) that has been the first to break ranks. For three days, beginning on January 8th, as many as 300 workers from the Xinji Spinning and Weaving Company gathered outside the city government's headquarters to demand the subsistence wages promised by their employers when the former state-owned factory closed in August.

Since the SOE reforms a decade ago, the internet has become a far more widely used and powerful medium for dissent. Protesters in Xinji used it to draw attention to their complaints. Many citizens wrote messages on a local bulletin board expressing their support. One of Xinji's deputy mayors met the demonstrators and helped to arrange payment of the overdue money, possibly (some say) with government funds. Buying protesters' silence is a frequent tactic of local officials, who fear that visible unrest may tarnish their careers.

Among urban citizens, it is the job prospects of graduates that worry officials most. A rapid increase in the number of university places in recent years has been accompanied by declining numbers of college leavers who regard themselves as suitably employed. A record 5.6m graduated last year, nearly 650,000 more than the year before. Another 6.1m will graduate in 2009. Around 1.5m, however, were jobless at the end of last year. This month China's prime minister, Wen Jiabao, convened a cabinet meeting to discuss the problem (“If you are worried, I am more worried than you,” he had told students during a campus visit earlier). The government said it would give loans to graduates to help them start businesses as well as to companies that employ them.

Discontent among students is particularly alarming to Chinese officials because of the historical role they have played in political upheavals, from the anarchic Cultural Revolution in the late 1960s to the Tiananmen Square protests of 1989. The authorities will be particularly vigilant around May 4th, the 90th anniversary of student-led protests that led to the birth of the communist movement, and on June 4th, the 20th anniversary of the suppression of nationwide student demonstrations calling for more democracy. The students involved in the 1989 unrest were also disheartened by grim job prospects.

But there has been little sign of political activism among students in recent years. They have taken to the streets only to make nationalist points, and in support of the government. The authorities worry about the destabilising potential of nationalist ferment too, but far less than it does about calls for democratic reform.

Whether or not unemployment brings unrest on the scale seen in 1989, the party will be severely challenged over the next few months. Disagreement is growing within its own ranks, and between different parts of the bureaucracy, over how to spend the money earmarked for stimulus measures and how to prevent it being siphoned off, or pocketed, by local governments. President Hu and Mr Wen will face considerable pressure to do more to help farmers and the urban poor. Just before the lunar new year the government announced unprecedented one-off payments totalling 9.7 billion yuan to 74m people living close to the poverty line. President Hu also sought to burnish his political credentials by visiting Jinggangshan, an area known as the cradle of the Chinese communist revolution.

In January 2008 a law was implemented that made it harder to fire employees. Now some complain that it is being widely ignored. Other laws are being stretched, too. In December Xinji's environmental bureau said that in order to “address the negative impact” of the crisis, it would “simplify” procedures in order to provide swift clearance for those projects that would create “little” or no pollution—a strong hint that it was lowering its guard.

Wu Xiaoling, a former vice governor of the central bank and now a senior legislator, is said to have suggested recently that GDP growth should cease to be used to judge officials' performance. Improving “public welfare” should instead be given top priority, she said. Messrs Hu and Wen want to keep both the pro-growth and the pro-welfare camps happy (more welfare spending, they reckon, could help consumers to save less and spend more). But most of all they want local governments to keep factories and businesses open.